Software: Still Eating the World

But, like, in a good way?

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1. Marc Andreessen

I’ve been a fan of Marc Andreessen for a long time. If you have not followed him, I highly recommend his seminal essay “Why Software Is Eating the World.”

And I also recommend his latest essay, a post-COVID treatise on how tech saved the world and, as a companion, this interview he gave last week to Noah Smith.

Andreessen is a tech optimist and the basic thrust of his worldview is that:

  • Software is a transformative good.

  • All (or most) industries and economic interactions will eventually be touched by software.

  • In any encounter between software and an existing sector, the old sector will become centered around software.

  • The sum of these transformations will be to optimize efficiency, but also create entirely new classes of economic exchange.

  • And these transformations will raise outputs and thus the standard of living for everyone, everywhere, eventually.

I’m obviously simplifying several years of careful thinking into five bullet points, but you get the general idea.

In “Technology Saves the World” and the interview with Smith, Andreessen lays out another thesis:

  1. The public sector failed to manage the pandemic effectively, not just in the United States but in most of the world.

  2. The private sector—especially tech—both came up with the solution to COVID (mRNA vaccines) and came up with the means to keep the knowledge economy functioning more or less at full speed.

His takeaway from this is that we can’t count on governments and that future improvements to society are likely to come from tech advances emanating from the private sector.

There’s a lot here that’s correct. Most governments did fail to manage COVID effectively. The tech sector was essential to keeping America afloat. If you’re looking to have the world’s quality of life improved by public sector actors, you’re probably going to be disappointed.

But there are some corollaries that Andreessen doesn’t tease out that seem important.

First is the nature of government. In liberal democracies, people get the government they deserve. A serious society will get a serious government. A decadent, unserious society, will get . . . something else.

The problem here isn’t “government” or “the public sector.” The problem is: people.

Which leads to the second corollary: Andreessen sees the tech sector as the future of progress. He’s probably right. But if this is true, then it is precisely because the people in this sector are the elites who are working at a remove from the main body of Real America. This is an old story: noblesse oblige, the meritocracy, the best and the brightest. It’s just that these days the elites are cordoning themselves off from the rest of the country in Silicon Valley and Austin and Boston.

And in any system, the elites are only as effective as The Government—or in our case, The People—lets them be.

This isn’t necessarily a bad thing! We want—or at least I want—the government having some power to regulate and oversee certain economic interactions. I don’t want Elon Musk selling Falcon Heavy rockets to North Korea, just as a for instance.

There are all sorts of places where we want the public sector to be looking over the private sector’s shoulder: on safety, on environmental impacts, in the labor market. And here’s the thing: Everyone in America basically agrees about this now.

We have quibbles about the limits and the details. But there ain’t no one, nowhere, who is pushing for “small government” anymore.

Ayn Rand isn’t walking through that door.

2. Who Doesn’t Love Working from Home?

All of that said, I’m not convinced that the upsides of tech disruption are as positive as Andreessen believes.

Let’s take one case: Remote work.

I love remote work. It’s the best. It absolutely helped keep our economy alive over the last 18 months. Here’s Andreessen on the subject:

For thousands of years, until the time of COVID, the dominant fact of every productive economy has been that people need to live where we work. The best jobs have always been in the bigger cities, where quality of life is inevitably impaired by the practical constraints of colocation and density. This has also meant that governance of bigger cities can be truly terrible, since people have no choice but to live there if they want the good jobs.

What we have learned — what we were forced to learn — during the COVID lockdowns has permanently shattered these assumptions. It turns out many of the best jobs really can be performed from anywhere, through screens and the internet. It turns out people really can live in a smaller city or a small town or in rural nowhere and still be just as productive as if they lived in a tiny one-room walk-up in a big city. It turns out companies really are capable of organizing and sustaining remote work even — perhaps especially — in the most sophisticated and complex fields.

This is, I believe, a permanent civilizational shift. It is perhaps the most important thing that’s happened in my lifetime, a consequence of the internet that’s maybe even more important than the internet. Permanently divorcing physical location from economic opportunity gives us a real shot at radically expanding the number of good jobs in the world while also dramatically improving quality of life for millions, or billions, of people. We may, at long last, shatter the geographic lottery, opening up opportunity to countless people who weren’t lucky enough to be born in the right place.

I love where his head is at. I want to believe. But also, there are some downstream effects which are not obviously awesome.

(1) Remote work gives employers enormous leverage over workers. Andreessen says “expanding the number of good jobs in the world” but another way to say that is “expanding the available labor supply for all existing jobs.”

Typically, when you expand the available supply of workers, wages are pressed downward.

(2) Cost of living will give employers another big lever with which to move wages downward. If you run a tech firm in Austin and suddenly you can swap out local workers for workers living in Cleveland, are you going to pay the new crew Austin-level wages?

And when the Cleveland workers eventually move on and have to be replaced, will you even consider the salary requirements of applicants from Menlo Park?

(3) The internet is very good at harnessing the power of zero marginal cost to unlock value. And in many cases, unlocking value can raise all boats. Everyone winds up with a better phone than they could have had without the iPhone.

But some goods—many of them quite important—tend to be positional. Real estate and education are the two obvious ones. If everyone in your town gets a $50,000 raise, do you all move to nicer houses? No. Because the supply of houses is finite and all buyers are competing with the same increased purchasing power.

If you everybody starts making more money, positional goods simply resettle themselves in the same basic distribution, but at a higher price. No one wins.

Again, I love remote work. But is it functionally different from the offshoring of jobs that globalization made possible starting in the 1980s and 1990s?

With respect to Andreessen—and I really do respect the man—I’m not sure that remote work is as consequential a technological development as the intermodal shipping container. By transforming logistics, containerization radically transformed the economics of manufacturing, in much the way Andreessen says remote work will. But at the global level.

And yes, you can make all sorts of optimization and efficiency arguments which say that the net-net result of globalization has been to raise standards of living and make the median human being better off. But we should not pretend that there have been no downsides.

Like—just to pick one example—the activation of revanchist elements across the globe which are currently undermining democracy.

Andreessen is acutely aware of how important culture is in business. One of his observations is that legacy companies are rarely able to preserve their dominance once technologically advanced rivals appear. In theory, it should have been easy for Blockbuster to just do what Netflix did. But Blockbuster couldn’t. Because it was Blockbuster. It’s corporate culture precluded such advancements.

I’m not sure that Andreessen appreciates that culture might play a similarly decisive role in the nation-state. If the culture is bad—if the people are foolish, or decadent, or simply rotten—then all of the technological advancement probably isn’t enough to save it.

A friend who works in VC once explained to me that in his world they have a maxim: The pessimists look smart; the optimists get rich.

What this means is that a guy like me can give you reasons why 99 ideas won’t work, and be right about every one of them. But the optimist who naïvely backs all of those 99 failures also winds up backing the hundredth idea that changes everything and makes a mint.

Which is probably why I write newsletters and Marc Andreessen is a hugely successful guy who runs one of the most interesting VC funds in the world. His optimism is very much worth paying attention to.

3. Tech and Africa

More tech: Over at the Generalist (expensive, but definitely worth subscribing to) there’s a long briefing about tech in Africa and it was absolutely eye-opening to me. If you’re into this sort of thing, it should not be missed.

26 African countries attracted venture capital funding in 2020, for a total of $1.43 billion. This sum might seem small on a global scale. Indeed, it represents less than 0.5% of the estimated $300 billion in VC raised last year. But it’s really an illustration of the region’s advancement. Ten years ago, the African startup and venture capital ecosystem was virtually nonexistent, and since 2015, the continent has seen over 40% in annual VC capital growth. That’s a startling trajectory. 

As you’d expect, the distribution of this capital is far from equal. Just as Silicon Valley attracts more money than other US geographies, or the UK entices larger contributions than Estonia, Africa’s ecosystem is concentrated. The degree of this consolidation is indicative of the scene’s relative immaturity: 80% of total funding going to just four countries — Nigeria, Kenya, Egypt, and South Africa. . . .

Nigeria is perhaps the best single national market. It has many of the ingredients to support venture scale businesses, including a 200 million population, strong tech talent, robust angel networks, and impressive insurgents with Flutterwave and Interswitch based in Lagos. As those two businesses suggest, Nigeria is particularly renowned for its fintech scene, which continues to grow. . . .

Not far behind Nigeria from an investment perspective is Kenya. Though the country has a smaller population of roughly 50 million, it’s become a hub for agricultural tech. Remarkably, of funding in this sector, a full 79% went to Kenyan startups. A significant influence on this figure was the $85 million Gro Intelligence picked up in 2020. Beyond this space, Kenya also has deep roots in fintech. Indeed, much of the country’s success as a tech center can be traced back to Safaricom, owner of money transfer provider M-Pesa. That service has enabled entrepreneurship in a manner few other products have. 

Egypt was the busiest nation in terms of the number of deals conducted over the last year, with 24% occurring in the North African country. It was also the fastest-growing market among the top four with an annual increase of 28% in invested capital. That comes from both local and foreign investors. Even famed firm Sequoia is getting into action, recently leading a $5 million investment in Egyptian neobank, Telda. Much of Egypt’s allure comes from its network of skilled founders and operators. The successful exits of Careem (sold to Uber) and Fawry (publicly traded) have birthed a stratum of financially successful tech workers ready to build again, or invest in the next great Egyptian startup. As the Telda round suggests, Egypt attracts interest in fintech, while also dominating in logistics, mobility, and edtech. 

Our journey southwards (by way of Cairo) culminates in South Africa. The richest country on the list by a GDP per capita basis, the tip of the continent is home to a thriving financial sector, even if it does not boast the financial tech clout of Nigeria. South Africa is also home to media heavyweights like Naspers, a global player with a strong center of gravity. The country is particularly dominant in the enterprise software space, attracting almost half of all funding. . . .

One of the reasons tech scenes become stronger over time is that the winnings from significant exits — both talent and capital — are reinvested. When a company like Airbnb goes public, employees receive a payday which they can use to found a business or angel invest. 

Less tangibly, big exits (and large raises) have considerable psychological impacts on future founders. Seeing that others can succeed in similar circumstances can persuade more talented individuals to give entrepreneurship a shot. 

Africa needs more winners. Though a few companies have broken out and achieved significant exits, they are few and far between. 

One exception is Pan-African e-commerce company Jumia, which went public on the NYSE in April 2019. In doing so, Jumia became the first startup from Africa to list on a major global exchange. While the company has struggled since its debut — closing markets and losing money — it nevertheless represented a landmark. In August of the same year, Fawry, an Egyptian payments fintech, also went public on the Egyptian Stock Exchange at a $1 billion market cap. Thankfully, Fawry has moved in the opposite direction, doubling in value. 

Again, though relatively sparse, Africa has seen some notable M&A activity. Last year, payments company Stripe acquired Paystack for $200 million. The Nigerian company had taken in just over $10 million in venture funding, locking in a big win for investors. Similarly, WorldRemit, a UK online money transfer company, acquired Africa-focused remittance firm Sendwave, also in 2020. Though that deal got less buzz in mainstream Western tech circles, it was the larger transaction, valued at $500 million. 

There have been smaller transactions, too. In 2017, after making several investments into the company, Naspers acquired South Africa’s largest e-commerce retailer, Takealot; they bought out Tiger in the process. In 2018, UberEats acquiredOrderTalk from Knife Capital. Finally, in 2020, mobile money gateway MFS Africa acquired Ugandan player, Beyonic.

A good, if imperfect, proxy for future exits is the number of growth rounds a region sees. In that respect, Africa is trending in the right direction with an increasing count of financings above $100 million. Companies that receive these mega-rounds are often marked out as regional winners, attracting further interest from large foreign investors.

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