Understanding Silicon Valley's Missteps: A Reflection on 2022

In 2022, it became evident that Silicon Valley does not possess an exclusive wisdom over the rest of us. The fallibility of even the most esteemed figures is often highlighted when they become ensnared in echo chambers.

My finance instructor was a peculiar individual, largely because he belonged to an earlier generation. He retired at the onset of the internet boom—not simply because of the internet's rise, but due to how dramatically it reshaped investment landscapes.

Throughout his extensive career, he adhered to traditional investment metrics that had proven reliable over time. However, the tech surge, particularly with the Nasdaq soaring by 400% in a mere five years, bewildered him.

While conventional indicators raised alarms about overvalued investments, the so-called experts insisted that these metrics had become obsolete. Companies like Pets.com, Webvan, and Boo.com defied conventional assessment.

His resignation was prompted by an elderly client who wished to invest in “Yoo-Hoo”—now recognized as Yahoo—despite her lack of understanding of it.

This scenario echoed a historical phenomenon from the 1600s when an exotic flower arrived in the Netherlands, causing a frenzy among investors. Tulip mania led to exorbitant prices, with some reaching the equivalent of a million dollars, prompting even everyday people to borrow for investment.

They disregarded established valuation principles, which ultimately led to financial ruin when the bubble burst. My instructor's skepticism about early internet companies was validated; this period is now referred to as the Dot-com bubble.

We currently find ourselves in a similar situation, often labeled as a crypto bubble, but I argue it’s more accurately a Silicon Valley bubble. The swift evolution of technology has elevated technologists to the status of modern-day gurus, akin to a cult-like following.

While these innovators are undoubtedly intelligent and their inventions transformative, they sometimes resemble naive traders enamored with tulips. Thus, 2022 can be characterized as the year of the Silicon Valley bubble, or rather a sequence of bubbles.

Apple’s iPhone Bubble

> “It’s not a good place for human beings… There is no improvement since the media coverage.” > — “Xu,” A Former Employee of Foxconn via Brian Merchant’s article in The Guardian

While we were preoccupied with the collapse of cryptocurrencies, another issue flared up across the ocean—a tragic fire at an apartment building in Urumqi claimed ten lives, including a child. This incident incited massive protests.

According to ABC News, the fire took over three hours to extinguish, with some attributing the delay to the challenges firefighters faced due to lockdown restrictions. Reports also indicated that the building’s doors were locked from the outside.

Despite stringent control measures, protesters discovered methods to disseminate information, including utilizing the iPhone's AirDrop feature—until Apple restricted it, citing necessity.

Their reliance on Chinese manufacturing is profound. The iPhone revolutionized our tech landscape by merging computer, phone, and personal digital assistant functions into a single device, necessitating affordable, focused labor available at Foxconn.

Brian Merchant's article notes that Foxconn's workforce exceeds Estonia's total population, and the environment mirrors China’s authoritarian regime. Merchant's observations during his visit to Foxconn revealed several concerning aspects:

Suicide is disturbingly common, prompting the installation of nets around the buildings to catch those who jump.
Employees reside on-site in cramped quarters.
Workers endure grueling twelve-hour shifts, processing up to twelve hundred iPhones daily.
Security is stringent, making entrance and exit challenging. A reporter from Reuters was previously assaulted for photographing the facility's exterior.
Most employees leave after a year, though some stay longer under the false promise of increased pay.

Steve Jobs controversially defended Foxconn, claiming their suicide rate was on par with China's average—essentially, Apple turned a blind eye to both the labor practices at Foxconn and the Chinese government's actions.

In a recent podcast, Matthew Tye, who lived in China for a decade, pointed out that the government employs the very smartphone technology Apple created to exert control, especially during lockdowns.

QR codes are mandatory for entering and exiting buildings, and alerts regarding Covid cases restrict citizens' movements. Tye noted these notifications serve to stifle protests, as the government utilizes smartphones and surveillance cameras to track dissenters.

Reports suggest that Apple is considering relocating its manufacturing operations from China—not for ethical reasons, but in response to lockdowns that have disrupted their iPhone production, marking yet another bubble burst in Silicon Valley.

The Twitter Bubble

Similar to the Dot-com bubble, many assume that standard economic metrics do not apply to Silicon Valley titans like Twitter, Facebook (Meta), and Google. Yet, we are discovering that this assumption is flawed.

While Twitter garners attention due to the antics of a billionaire owner, it was already struggling before Elon Musk's acquisition. As Katie Canales from Business Insider highlights:

> “Twitter has long struggled to reach profitability and grow its user base, much to Wall Street’s dismay. And Twitter admitted earlier this year that it messed up how it counts monthly active users, a metric so important that the Securities and Exchange Commission has started sniffing around.”

Canales portrays Jack Dorsey as a detached leader who left Twitter in a precarious position. She also details internal leadership conflicts and bizarre activities among employees.

For example, a former Twitter employee was recently convicted of espionage for Saudi Arabia, using his position to expose dissident locations. This raises questions about connections to the Jamal Khashoggi incident.

Moreover, Twitter leaks reveal government involvement in moderating content, highlighting instability within the platform. Even the tech prowess of Silicon Valley hasn't salvaged a sinking ship like Twitter.

Yet Twitter is not alone in its misguided belief that it can transcend traditional business metrics.

Meta, the rebranded Facebook, plummeted like the New Coke when it attempted to create a new version of the internet, resulting in over nine billion dollars in losses and a thirteen percent workforce reduction in November.
Due to unsatisfactory earnings, Tech Crunch recently posed the question, “Is Silicon Valley Losing Its Crown?”
Even Google is planning to lay off six percent of its workforce.

The turmoil at Twitter is merely a reflection of broader issues afflicting Silicon Valley. Consider it a digital equivalent of tulip mania. However, before adopting a purely pessimistic view on technology, let’s return to the story of my finance class.

Bubbles, Stars, and Skepticism

My instructor exited the investment scene because the modern financial landscape seemed nonsensical to him—akin to tulip bulbs. Yet, some companies from the Dot-com era, like Amazon and eBay, emerged as successes.

His disbelief in internet businesses led him to overlook these bright spots.

Even amidst a bubble, there are promising opportunities. Some investors in tulips, Dot-com stocks, and cryptocurrency enthusiasts have profited handsomely.

However, excessive faith can make one susceptible to fraudsters like Sam Bankman-Fried, Bernie Madoff, and Charles Ponzi, who are ready to exploit naivety.

I view Silicon Valley in a similar light. Many perceive it as the future, where binary code replaces human labor, transforming our understanding of business metrics.

It's wise to adopt a more skeptical approach rather than outright dismissal. The roots of skepticism can be traced back to the ancient Greek Pyrrhonist skeptics, who symbolized their philosophy with a weighing scale, awaiting evidence before forming opinions.

Currently, I assess the evidence surrounding iPhone production in China, Twitter's mismanagement, Facebook's rebranding to Meta, and Google's financial troubles as far from exemplary.

In fact, I would venture to assert that 2022 revealed Silicon Valley is not inherently wiser than the rest of us.

If you wish to explore more stories like this, consider subscribing to my mailing list. Joining Medium allows access to other writers, including myself, for just $5 a month. I would also benefit from your referral, which will be used to acquire a new digital scale for weighing investments.

Subscribe to DDIntel Here.

Visit our website here: https://www.datadriveninvestor.com

Join our network here: https://datadriveninvestor.com/collaborate