State of the Forest

May 25, 2023

Time flies when you’re having fun. I can’t believe it, but last week’s article was the 20th for Forest Over Trees. So today is going to look a little different.

The plan:

  1. Themes: As I’ve been researching and writing, I couldn’t help but notice higher-level themes. I’ll start with those, connecting dots and making my case.

  2. Reflections & Corrections: I’ll take inventory of how it’s gone so far and assess whether I’m hitting my goals.

  3. What’s Next: I’ll share how I plan to tweak my approach for the next 20 articles, so you aren’t surprised as things evolve.

One quick note, especially to the bunch of you that subscribed this past week – welcome! This article will involve more navel-gazing than the usual ones, so feel free to drop-off after the “Themes” section if you want. Excited to have you reading.

Themes

#1 - Power Struggles & Independence

Globalization is now out of style. The number one tech power (the US) is trying to fend off the number two tech power (China). Why? Because tech supremacy = military advantages = economic advantages. Intricate global supply chains are being smashed to bits, and countries are increasingly sounding like the grandma from Wedding Crashers… “I can do it myself, asshole!” In the US, we’ve gone from seeing economic interdependence with China as a deterrent to conflict, to now seeing it as a vulnerability. So we have lengthy lists of Chinese export controls, and China responds with its own lists. We’ve coordinated with allies to restrict sales of Huawei’s hardware products, and China earlier this week banned Micron’s chips. And now we’re considering banning TikTok, an enormously popular product (1/3 of Americans use it), because of its Chinese ownership.

For more complicated supply chains like chip-making, the tit-for-tat escalations are even higher stakes. The most powerful AI supercomputers need the most advanced chips, which require US designs, Dutch machines, Japanese materials, and Taiwanese fabs. And the economies of those countries depend on sales not just to the US, but also to China and their allies. Asking the Dutch, the Japanese, and others to pick sides – especially in a sketchy economic environment – puts them between a rock and a hard place.

The same way that splitting-up large companies helps create shareholder value and jobs, I think this move to more resilient, self-reliant production is actually really good for the Chinese and US economies. It’s essentially the opposite of “creating synergies” in a typical company merger, since you’ll now need new companies and suppliers to step up to fill-in gaps. But the move to self-reliance is really bad for coordinating on important long-term projects – like fighting climate change and the industrialization of space. On the whole, I think the downsides outweigh the upsides, and to me this stubborn push towards independence feels like a regression to a less-evolved world.

I’m hopeful, though, for two reasons. First, I think the declining Chinese population will slow their GDP growth to the point where their competitive threat to the US subsides. Even if it doesn’t go away, or they continue to slowly overtake, it feels like part of the US’ fear (and move to self-reliance) stems from China’s high-speed rise. Second, because mitigating climate change and managing our move to space will become more urgent with every year, I think we will be forced to work more collaboratively. Hopefully we get moving on those before a lack of coordination shows up in some sci-fi incident, like a super-Tsunami or an accidental spaceship collision (Those are made up! Not a prediction!)

Links to prior articles for more on: China, TikTok, Chips

#2 - The Government as an Innovator

Good things happen when the US government takes a proactive, vested interest in innovative new tech. The Department of Defense invented the internet in 1966. Unsatisfied with having changed the world once, they also invented GPS in 1973. For a three-peat, they seeded the self-driving industry with a driverless car race in the desert in 2003. And a few years later they created the first AI voice assistant, which Apple bought in 2007 and became “Siri”. Innovations like those are how the US got into the top tech (and economic) spot.

But recently, our government has become a reactive “enforcer”, and it’s hurting our ability to innovate safely and quickly. Some tech giants have gone on unchecked acquisition sprees, building up massive advantages that eventually result in quasi-monopolies (cough, Google). And similarly, because they were slow to take seriously a new multi-trillion dollar industry and have failed to provide adequate regulation, crypto took off and bad actors got lots of power (cough, Sam Bankman-Fried).

We need our innovative government vibe back. We shouldn’t be suing net-good crypto actors like Coinbase, without giving them the tools or clarity to comply with regulations. We also shouldn’t be decades late to raise concerns about acquisitions like the FTC is with Google and others (Meta bought Instagram in 2012; FTC launched a suit in 2021…).

The government now has two key tests to see if it can return to being a proactive innovator.

  • AI. I’m encouraged by the White House recently investing $140M in National AI Research and by the 2021 CHIPS Act’s $280B towards chip-making. I’m less hopeful about the FTC’s commitment to using all their powers to pre-emptively breakup AI monopolies (they’re underfunded, and they’ve been unsuccessful with smaller, simpler breakups).

  • Climate Tech. The Inflation Reduction act is a huge step in the right direction. The $400B it sets aside for clean energy R&D, carbon removal, and electrification are game-changing. And this isn’t just ESG for ESG’s sake – PE firms, startups, and VCs are foaming at the mouth about the economic opportunities this creates.

So far so good on those tests, but we need to keep the momentum up and maintain the right balance. Too much regulation stifles innovation directly, and too little means incumbents stifle it indirectly. If we get that balance wrong, the power struggle I described at the beginning becomes even more chaotic.

Links to prior articles for more on: Self-Driving, AdTech, Crypto, AI, FTC, Electric Boats

#3 - Bold Moves

I’m impressed when CEOs make risky bets, and I wanted to shout-out a few of them.

  1. Neeva – Sridhar Ramaswamy and Vivek Raghunathan are former Google execs who started a new search company in 2019. Now if that isn’t a bold move, I don’t know what is. They announced last week that they would be closing the search business, and yesterday they got acquired by Snowflake, but I still applaud the effort. I wrote before about how dominant Google is in adtech, but search is even more lopsided. Shouts out to Sridhar and Vivek.

  2. Microsoft – Satya Nadella’s partnership with OpenAI looks more and more brilliant as time passes. While early on it seemed to me that LLM’s might just be a stepping-stone to something more “intelligent”, it’s proving stickier than that. People on Twitter are bragging about using Bing... enough said. Well played, sir. (link to ChatGPT article)

  3. Meta – Zuckerberg’s metaverse bet is impressive for two reasons. First, he’s unapologetically dumping $12B into R&D every year, and he renamed the company to make his priorities clear. Second, despite that huge ongoing investment, he’s convinced shareholders to trust him again. The stock is up 184% from its November 2022 low. I’m not a Meta fanatic, but Zuck the haters. (link to Meta article)

  4. Apple – Tim Cook is known as more of an operator, but he’s slated to launch a risky mixed reality headset on June 5th. I’d argue it’s the biggest hardware release of any company in the last five years. It’s Apple, so I’m sure it will be more beautiful than competing models, but there are tech shortcomings that the industry hasn’t solved yet… This thing could flop. Go Tim go. (link to Magic Leap article, which is a competing product)

I’ll dive deeper on these themes, companies, and founders in future articles, and I might return to this 50 thousand foot view every once in a while. For now though, I’ll put away my thumbtacks and string and stop trying to connect everything together like a crazed amateur detective.

Instead, let’s now do a bit of navel gazing….

Reflections & Corrections

I only had two goals when I started writing in January:

  1. Better understand the tech industry, feeding my own curiosity

  2. Share what I learned, to help you or entertain you

So do I have a better understanding? Yeah definitely. But the more I learn, the less I know. Writing (and knowing you’ll read) pushes me to go deeper, and it’s humbling to have a huge list of unanswered questions… even when it’s way past time for me to draft the next article.

Am I helping or entertaining you? That’s harder to answer. But I will say this – I’ve heard from at least one of you (that isn’t my mom) that you’re reading and enjoying it! Truthfully, I’ve heard from a bunch of you, and this thing is growing, and it’s been awesome. Thanks for the encouragement and for taking the time to read.

That said, I know you’ll also have feedback on things I missed or could be doing differently, so I’ll be sending a quick survey in a few weeks to hear what those are.

Speaking of things I missed, I did want to take a minute to acknowledge a few errors and omissions. These have been nagging me, and they’re now corrected in the website versions of these articles!

  • Google’s Ad-tech – I oversimplified the structure of the adtech market. I originally labeled Google’s ad server as an SSP, but those terms are distinct, and Google’s ad server is not an SSP. Still though, they have control over three pieces in the stack, and they use that as leverage to advantage their own tools (allegedly)

  • SVB Deposits – When I was quickly describing a situation where we cover 100% of deposits (including those above FDIC limits), I used the word “unprecedented”. In fact, it’s actually the norm for the Fed to come up with creative ways to protect all customer deposits. It’s completely precedented. My bad on that one.

  • FTC 101 – When describing the difference between the types of cases the DOJ handles vs. what the FTC handles, I used the FTC’s own explanation. It basically says that the FTC does tech-related civil suits and DOJ does non-tech criminal suits (link). Annoyingly, the DOJ’s tech-related civil suits of Google completely contradict that. While I have not been able to confirm exactly why DOJ has jurisdiction, it thankfully doesn’t change the key takeaways from the article.

Sorry for any confusion caused! I’ll continue to flag corrections for you when I need to.  

What comes next

Many of you know I’m a recovering management consultant, and boy do we love a good framework. Here’s a favorite one to help me set expectations for the next 20 articles: start, stop, and continue.

Start:

  • Phoning-a-friend. I’m still deciding the “how”, but I want to weave in other points of view. Whether it’s clipping audio from podcasts or talking to people myself, other POVs will help us all learn more. I won’t pretend to be a real journalist – scout’s honor.

  • Sticking to a schedule. Based on the data so far, it seems like Thursday mornings are the best time for y’all. So I’m going to lock that in as the standard schedule. Let’s do it!

Stop:

  • Re-writing the ‘101’. When I write about something dense/technical, I’ll absolutely still write a quick intro if it’s the first time covering it. But if I have written about it, I’ll just quote myself or link back to the old article. That way, you can opt-in or out of the explainers and get straight to the good stuff.

Continue:

  • Opining & Predicting. I’ll continue to share my opinion on what I’m writing about, and to give educated guesses about what might happen next. I’ll also do my best to keep opinions and facts clearly labeled. Call me out if that starts to get murky.

If you’re reading this, you’re a legend. Thanks for the support and for being on the journey. This formally concludes the State of the Forest. Next week, we get back to the standard articles.

Talk to you then.