Ah Sh*t, Here We Go Again….

About a dozen years ago I wrote about Web2 powering (1) a tectonic technological infrasTructure shift (there was no synonym for infrastructure that started with the letter “T”), (2) consequent robust job creation, (3) a ~2x increase in the Nasdaq, and (4) consumer spending increases to power the virtuous (dare I say) flywheel. Fast forward: lots of that happened, but now comes the hangover…. Massive startup valuation deflation, financing doors slam shut, (pseudo) hyper inflation and skyrocketing interest rates, consumers cut spending, housing market imploding, Big tech laying off thousands of people, war in Ukraine, high energy prices, pandemics, tripledemics, Chinese balloon invasions, and the four horsepeople of the apocalypse are saddling up.

So what now? 

Ah Sh*t, here we go again…. In 1995, J. Neil Weintrout from my then future employer Hambrecht & Quist (the tech boutique investment bank of tech boutique investment banks that took Apple public a decade and a half prior) said: “The Internet changes everything.” (Or something like that.) And it did. (Duh.) Newspapers no longer needed paper distribution, retail didn’t need physical locations, banks didn’t need branches, and so on and so forth. It was an easy call in retrospect; nearly all US homes had computers, but only ~20% were connected to the Internet so the gap was destined to close. (I know because I wrote that in an equity research report I wrote a couple of years later. [Taps self on back.]) Valuations went bonkers (tell me about a bubble when splits pop stocks again), Buy.com spent a trillion dollars on a blank black screen Super Bowl commercial; and then everything blew up. In the aftermath, Google and everything else happened. Yes, I know Google was founded before that, but it went public at $23B and, as per my trader at my first hedge fund, there was “a line around the corner to short it.”

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It was a once in a generation tectonic shift, only it happened again not a decade later when social, mobile, and cloud computing entered the vernacular. We called it Web 2.0 (I know because I have a t-shirt), but we really didn’t call it that until now. And it changed everything (again). Maybe it wasn’t quite the apparent boom bust (boom) cycle given it was obfuscated by a Great Recession, but new leadership emerged; Facebook and Twitter (and MySpace and Friendster) took on Google, AWS emerged in the cloud from a boring online bookstore (with Microsoft / Oracle / Dell / EMC caught flat footed), and we started streaming movies to our iPads via Netflix. In retrospect, like the dotcom bubble before it, it seems like it was a straight line up and to the right. It wasn’t. A bunch of companies went public, but then Facebook broke issue (and the valuation halved from ~$100B at IPO) and the party was over. Only it wasn’t. Love it or hate it, Facebook quadrupled its IPO valuation (and octupled its low), half of IT spend is now for cloud infrastructure (from <10% ten years ago), and last month I watched the Super Bowl on Youtube TV.

So what now? (Didn’t I just say that?)

First, the parallels. Bitcoin went over $60K, Nvidia GPUs got sizzling hot (see what I did there?), Roblox and Fortnite pulled our kids into Ready Player One, Coinbase bought a gazillion dollar Super Bowl ad with a broken QR code, Square changed its name to Block, and ChatGPT got $400M from Microsoft to make Google prematurely ejaculate Bard; and then everything blew up. Again. (Recap of very recent history: crypto currencies are down 50%+ from their highs, the Ethereum Merge turned Nvidia GPUs into paperweights, RBLX sits at half its IPO price, and the fruit fly attention span of the peanut gallery dumped crypto to fall in love with generative AI.)

Buuuuut, like Web1 and Web2 after their respective (generously described) downturns, what didn’t change is the fundamental impact of these platform shifts on technology and society - infrastructure change is real, new, novel, and profoundly impactful.

Put another way: “The Internet Web3 changes everything [again (again)].”

Web3 is the intersection of blockchain, metaverse, and artificial intelligence - three fundamental technologies that are only now feasible because of the availability of increasingly high performance compute at increasingly lower cost. Web1 was “read” (e.g., static web pages) and Web2 brought “read / write” (e.g., social media) based on distributed client server models (e.g., cloud computing). Web3 introduces “read / write / own” in which users create, consume, and own the upside of their work via tokens. It is built on peer-to-peer networks that interact without middlemen. This means that all Web1/2 companies / concepts will be rebuilt for Web3 to leverage the economic and practical opportunities unlocked (much like every sector was rebuilt for web and for social and for mobile and for cloud and so on).

What are all of those things that need to be rebuilt and what are those unique and novel things we’ll be able to do? I.e., what are the killer apps for Web3? Read my next installment to find out. (Spoiler alert: I don’t really know, but we’re gonna figure it out together.)

[Disclosure: at any given time I may be long AMZN, COIN, NVDA, FB, etc.; i.e., nearly any public (or private) company mentioned above.]