Ignore the doom-mongers: there’s no crisis in Silicon Valley
Apple’s financial results for its fiscal 2016 first quarter ended December 26, 2015 has prompted a lot of speculation and comment in the media, with some commentators attempting to translate the company’s progress as somehow indicative of a wider crisis in Silicon Valley
To start with, Apple’s results seem absolutely fine to me. At this stage in the game, punishing a company on the basis that its time of unlimited growth is over (for the moment) only illustrates, once again, how little the markets really understand about valuing businesses. Over the years, Apple has reinvented several products and categories, and will continue to do so, because that is its approach to innovation. Getting more people to switch to or to buy new models of the company’s bread and butter product, the iPhone, depends on many factors, among them awareness that for most people this is a sufficiently powerful device for our needs at present.
That said, new uses, new apps, and new possibilities will doubtless present themselves and we’ll see a return to the growth of the old days. Apple has already been here on a number of previous occasions and has recovered simply by releasing a new iPhone. Apple’s business model, which combines increasing its market share at the same time as attracting new customers, is still in robust health: every year, the people who own its products continue to visit their local Apple Store, virtual or otherwise, and spend a bit more money, apparently very pleased to do so.
Meanwhile, Google’s share price continues to rise, as it competes with Apple for the right to be called the world’s most valuable company, and although it is still pathologically dependent on revenue from a model the limitations of which are increasingly clear, at the same time, it seems committed to the fight against ending up like every other company, keeping innovation to the fore, as evidenced by the creation of Alphabet as a holding company for its myriad activities.
It’s a similar situation with Facebook. Anybody who can understand the significance of being able to peruse the private lives of more than 600 million people around the world will see what this company is worth and what it can do if its sets its mind to it. Obviously, it isn’t going to keep growing at the rate it has enjoyed up until now, because quite simply it will start to run out of people; but for now, growing numbers of people are continuing to use it to access more and more services, bringing it in revenue that has allowed it to pay pretty much any price for any company that might present an obstacle to its plans.
And Twitter? Well, here there is cause for concern. The company’s share value has continued to fall since its IPO, making it a possible target for acquisition, which would mean new management. At the same time, as its growing use by large organizations and celebrities shows, it is in danger of leaving behind the large mass of users at the bottom of the pyramid.
Businesses, institutions, and celebrities all understand the value of Twitter as a communication channel, and if it didn’t exist, somebody else would have invented it by now… but its subscriber base is not growing, because most ordinary people no longer know what to do with it: should we still use it to share special moments with friends and family? Should I still share news stories I think are interesting? I am in danger of being labeled this or that kind of user, and what are the consequences of this? More and more Twitter users are now lurkers, passive consumers. Until it is able to explain to the general public why they should use it, the company will continue to experience a slowdown in takeup.
So, is there a crisis in the Silicon Valley business model? Well, the first thing to point out is that there is no such thing as a Silicon Valley model. Instead, it should be seen as an ecosystem that has brought together a lot of very bright people with some interesting ideas, talented developers able to convert these ideas into executable code, along with investors looking to make the next big breakthrough. I doubt very much that Silicon Valley will ever be in crisis, regardless of the impact of fickle financial assessments. There isn’t a country on the planet that wouldn’t love to have its own Silicon Valley, the best-known model so far able to generate constant innovation. If this is a crisis, bring it on.
(En español, aquí)
