Many are questioning whether the golden era of Silicon Valley is coming to an end?
The wave of large layoffs at Snapchat, the plunge in the valuations of Meta and Apple, and the trend of hiring freezes at a series of Big Tech have led many to question whether the Golden Age of the Valley Is Silicon Coming to an End?
According to experts, the answer will be quite complicated. The technology sector has had an impressive time of growth in the context of the COVID-19 pandemic forcing the world to go online. However, that boom, which comes with wages and perks that attract workers, appears to be slowing.
“This party can’t last forever. We’re trying to get back to normal after a race where everything has changed” said Margaret O’Mara, a professor at the University of Washington.
The situation is especially aggravated in a major global recession, which the technology world cannot avoid after the US Federal Reserve continues to raise interest rates and is expected to maintain this policy longer.
In the past, low-interest rates have fueled a tech boom and a wave of new “unicorns” – companies valued at over $1 billion. Examples include Airbnb and Uber, with valuations of $47 billion and $82 billion in the initial IPO, respectively. However, changing interest rates have made investors “much more cautious”.
“Some investors still have cash, but in a bankruptcy period like this, the cash flow will cool down” Ms. Margaret O’Mara said.
WeWork’s failed IPO when its valuation plummeted from $47 billion to just a few billion dollars also slowed the growth of Big Tech. Theranos, the blood-testing company of “super donkey” Elizabeth Holmes, also contributed to this downfall, after investors realized they had been deceived about the technology and testing process.
They then stood still because they witnessed a series of popular technology startups that dropped dramatically. Large venture capital firms like SoftBank also cut their investments in startups by half due to recession fears.
A series of bad news, tight regulations in the tech world and Frances Haugen’s shocking Facebook denunciation before the US Congress further shaken the image of Silicon Valley giants, according to The Guardian.
Even former Big Tech supporters like former US President Barack Obama have changed their mind. He criticized Facebook for spreading false information about the election, even though it had previously benefited from this social network.
US lawmakers and federal agencies have now stepped in. The tightening scrutiny of the Federal Trade Commission (FTC) and Congress could lead to Big Tech facing unprecedented obstacles.
The general public’s perception of technology has also changed, with 68% of Americans saying that tech companies possess too much power, up from 51% in 2018. Thus, according to Business Insider, The price to pay for the decline of Silicon Valley does not stop at the financial side but also in the general values of society.
According to Business Insider , Silicon Valley’s business model is no longer a promised land for tech talent, but only following trends. The scale of its operations is also changing and is gradually expanding beyond south San Francisco. The COVID-19 pandemic has made the Bay Area a new destination and attracted a number of giants, including electric car maker Tesla.
According to Brent Williams of recruitment firm Michael Page, corporations are facing a “winter of capital”.
“COVID-19 has changed the entire market. Companies now, to recruit talent will have to compete with both technology hubs in the Bay Area and the entire US” said Brent Williams. Indeed, the tech giants have had to retain employees by paying in stock instead of cash. They promise this amount will increase with the growth of the company.
However, despite the difficulties Silicon Valley is facing, Stanford economics professor Nicholas A Bloom is optimistic that the region will remain “steadfast”. “It has gone through many cycles, including recessions in 2001 and 2008, but has still recovered strongly” he added.
In the same opinion, Professor Margaret O’Mara also said that not many companies will leave the Valley because it has unique characteristics that cannot be found anywhere else.
“The Bay Area and San Francisco have an enduring appeal. There’s a reason people go there. They want to be there. This is still true, even as California is facing a housing crisis and many employees are flocking to cheaper states” she said “An era of Silicon Valley may be over, but it’s not the end.”
Source: The Guardian, BI