Silicon Valley’s Bust is A Matter of Time

January 06, 2016 by Jennifer A. Diffley

Behind the billions of dollars keeping Silicon Valley afloat are clues that the good times may be coming to an end.

The tech rush may be nearing its end.

Dubai has always been a source of fascination for me, probably because the whole thing feels like it's on the verge of collapse. It's one thing to build the tallest skyscraper in the world, but compounding that with underwater luxury hotel suites and indoor skiing in the middle of the desert makes me nervous--it feels like the scene just before the proletariat stages a bloody uprising and sets everything on fire. 

Maybe that's dramatic. At any rate, a background of Scottish skepticism has instilled in me a firm belief that if something is too good to be true, it probably is. Which is why this may be the year Silicon Valley gets its comeuppance.

San Francisco has famously been a land of booms and busts; it's been awash in tech money for about the last 8 years, which is long enough for everyone to have forgotten the dotcom bust around 2002 and for a cloying attitude of overconfidence to take root. That's fine for businessmen stroking each other's egos over $200 steak dinners, but overconfidence is not what drives innovation. It's also fostered a sort of arrogance that has led startup founders to abandon accountability and ethics; they don't seem to mind much when they miss revenue targets. By a lot. According to Fortune, "a vast majority of the 131 startup unicorns missed their 2015 revenue targets," and that kind of oversight doesn't fly when it comes to finance.

But while unicorn startups may be congratulating themselves over what they view as tremendous success, Wall Street is becoming increasingly disenchanted. Proof of that was in Fidelity's devaluation of some major companies like Zenefits and Dropbox.

Dropbox's devaluation is a clue to rocky times ahead.

And then there's the issue that there are simply more startups now than there ever have been. Y Combinator even says, "We fund a lot more startups than we used to. The first YC cycle in summer 2005 had 8 startups. The most recent, in winter 2014, had 75." And while Y Com is in place specifically to help startups succeed, the blatant truth is not that all of them will, and the more of them there are, the less money there is to go around. Angel investors aren't philanthropists: when tech stops being as lucrative, easy investment money will be difficult to come by. I'm not alone in thinking that the bubble is close to bursting. 

While there are dozens of superfluous startups and useless apps littering the Silicon Valley landscape, hardware startups are having their share of headaches. Look at the Kreyos smartwatch, a San Francisco-based company that raised over $1.5 million on Indiegogo and then, very quickly, imploded. Or Coin, a universal credit card device that's been struggling for the past two years to get its product to customers and is now finding that its initial concept is now obsolete in the face of mobile payment options. For every successful startup, there are are dozens that took money without delivering.


Coin: a good idea that couldn't deliver before becoming obsolete.

There's light at the end of the tunnel though, and it's in the form of designers who retain engineering integrity. The key is to focus on producing a necessary, quality product. That can happen anywhere, and it doesn't have to happen in one of the most expensive places in the world (for a good laugh, look at current apartment prices in the Bay Area). Keep overhead low and be wary of easy money. 

San Francisco will bust, as is the inevitable result of all booms, but it doesn't mean bringing your product to market will be impossible: it just means you'll need to apply your intelligence to finance and business as well as to great design.

  • Glenn Holland January 06, 2016

    I’m a resident of San Francisco, and I can tell you that the so called “Tech Boom” is phony as a $3 bill.

    Most of the building boom in the San Francisco area is actually being financed by the government through a huge redevelopment program called “Plan Bay Area”. The plan was hatched back in 2009 with the intention of turning the entire bay area into a huge megacity like Honk Kong, Tokyo, etc. Funding actually comes from auto related fees like bridge tools and parking revenue. Furthermore, a lot of the so called “techies” are politically connected spoiled brat rich kids with ties to the Obama and Clinton administrations. In fact, Obama’s been to San Francisco to fund raise (taking contributions in exchange for big $$$ from Washington) 22 times and Hillary has been here 6 times.

    As for the economic boom in the Bay Area, it’s pork -not tech.

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    • photohounds January 06, 2017
      It is amazing what failed politicians can turn into a "Good News Story" ... with the help of some financially motivated followers. The author is correct about one thing though, other centres have realised the huge profits to be made from tech. They will acquire it by fair means or foul.
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    BillShrum January 15, 2016

    It is difficult to take this guy seriously when he thinks San Francisco is Silicon Valley.  Those of us who live in Silicon Valley know that it is Sunnyvale, Mt. View, Santa Clara and San Jose.  We are 50 miles South of San Francisco, and glad of it.  Glenn, what size is your tin foil hat?


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