Mike's Notes
Ed Zitron's blog post in 2023 on Silicon Valley behaviour provides a
fascinating insight. I copied it from his blog.
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Last Updated
11/05/2025
The Rot Economy
By: Ed Zitron
Where's your Ed At?: Feb 9, 2023
At the center of everything I’ve written for the last few months (if not
the last few years), sits a cancerous problem with the fabric of how capital
is deployed in modern business. Public and private investors, along with the
markets themselves, have become entirely decoupled from the concept of what
“good” business truly is, focusing on one metric — one truly noxious metric
— over all else: growth.
“Growth” in this case is not necessarily about being “bigger” or “better,”
it is simply “more.” It means that the company is generating more revenue,
higher valuations, gaining more market share, and then finding more ways to
generate these things. Businesses are expected to be - and rewarded for
being - eternal burning engines of capital that create more and more
shareholder value while, hopefully, providing a service to a customer in the
process. In the public markets, that means that companies like Google, Meta,
and Microsoft were rewarded for having unfocused, capital-intensive
businesses that required mass layoffs when times got tough, because the
market loved the idea that they’d found a way to save money. They weren’t
punished for their poor planning, their stagnating products, their
mismanagement of human capital, or their general lack of any real innovation
because the numbers kept going up.
When I wrote in October that Mark Zuckerberg was going to kill his company,
the street responded in kind, savaging Meta’s stock for burning cash
building a metaverse that was never going to exist. Yet once Zuckerberg
fired 11,000 people and claimed that 2023 would be the “year of efficiency,”
the market responded with double-digit increases in the price of Meta’s
shares, despite the fact that Facebook’s active user growth declined and
they lost $13.7 billion on the same metaverse department that caused the
stock to drop the last time.
The markets seemed to ignore the $410 million fine that Meta received for
GDPR violations, along with the fact that European users will now have to
deliberately opt-in to sharing their data - which is bad, considering only
about 25% of iOS users choose to opt-in to app tracking, and their business
model is intrinsically linked to the repurposing of customer data into ad
targeting telemetry.
Let’s be abundantly clear: Meta’s core advertising models depend heavily on
things that likely become impossible to do legally (or even technically,
given Apple’s App Tracking Transparency, Alphabet’s retirement of the
third-party tracking cookie, and the Chromium Project’s planned blocking of
non-cookie fingerprinting technologies) in the next decade. Their other
products simply do not make that much money. Their CEO’s big idea to make
more money has lost them billions of dollars, and likely won’t make them any
for quite some time. Yet Meta remains beloved, because the numbers are going
up.
Killing Innovation
Google has a similar yet slightly different story, where their core product
- search - has gone from a place where you find information to an
increasingly-manipulated labyrinth of SEO-optimized garbage shipped straight
from the content factories. As Charlie Warzel put it last year: “Google
Search, what many consider an indispensable tool of modern life, is dead or
dying.” Users have to effectively find cheat codes - adding things
like “[whatever you’re searching]+Reddit” to get reliable answers. Despite
its decades-long efforts to improve the quality of organic results, Google
remains easily-gamed by anyone who knows how to craft an algorithm-friendly
headline.
Without finding a way to negotiate with Google Search, you’re offered a
fragmented buffet of content provided by Google’s algorithm, either based on
how much they’ve been paid to prioritize said content or by how companies
have engineered content to rank higher on search. Google no longer provides
the “best” result or answer to your query - it provides the answer that it
believes is most beneficial or profitable to Google. Google Search provides
a “free” service, but the cost is a source of information corrupted by a
profit-seeking entity looking to manipulate you into giving money to the
profit-seeking entities that pay them.
The net result is a product that completely sucks. “Googling” something is
now an exercise in pain, regularly leading you to generic Search Engine
Optimized content that doesn’t actually answer your question. Google’s push
to hyper-optimization has also led it to serve results based on what it
*thinks* people mean, rather than what they actually said. It’s frustrating,
upsetting and annoying. A problem that likely hits hundreds of millions of
people a day, yet Google doesn’t have to change a thing, because the street
likes that they have found more innovative ways to get blood from a stone.
These moves are unquestionably hurting Google, to the point that Microsoft’s
Bing (paired with OpenAI’s ChatGPT), has gained major headlines for
providing the service that everybody wished Google would.
That’s because Google has, like every major tech company, focused entirely
on what will make revenues increase, even if the cost of doing so is
destroying its entire legacy. Google has announced their own “Bard AI” to
compete with Bing’s ChatGPT integration, and I’ll be honest - I feel a
little crazy that nobody is saying the truth, which is that Google broke the
product that made them famous and is now productizing fixing their own
problem as innovation.
That’s because the markets do not prioritize innovation, or sustainable
growth, or stable, profitable enterprises. As a result, companies regularly
do not function with the intent of making “good” businesses - they want
businesses that semiotically align with what investors - private and public
- believe to be “good.”
Despite its ubiquity, companies like Uber should not exist. Uber has not
made a profit from its businesses. They had a net loss of 1.21 billion last
quarter, yet the street fell over itself to praise the company because
“gross bookings grew 19% year-over-year” for their unprofitable businesses
that largely hinge upon the government failing to impose sensible labor
laws, a con that will eventually come to an end, and indeed, has ended in
some territories like the UK, where Uber drivers are now recognized as
employees, and are therefore entitled to pensions, paid vacation time, and a
minimum wage. London, I note, is one of Uber’s most important markets.
Yet as of writing, Uber’s stock is up 5%.
The media itself somewhat fuels this economy of growth-mongering. CNBC
reports earnings like many other media entities, but their reports on, say,
Uber fail to acknowledge the fact that Uber has spent nearly 15 years
burning money. It has never turned a profit. Even with its push into freight
and food delivery, it may never turn a profit, no matter how much it
contorts its financials to pretend otherwise. Yet acknowledging the truth is
that much worse because Uber will not be killed, because people keep buying
the stock, because it is a “valuable company” in the eyes of markets that
have fucking cataracts.
This is why we see such vast oscillations of hiring and firing - because
these companies are never, ever punished for failing to operate their
businesses in a sustainable way, or even with a view for the future,
particularly when it comes to macroeconomic trends that literally everyone
else saw coming.
Their business models were predicated on an endless supply of cheap money,
even though the Fed steadily ratcheted interest rates in the years leading
up to the Covid pandemic, only slashing them to mitigate the pain of Covid
and (to a lesser extent) the US-China trade war.. The specter of inflation
reared its ugly head as early as 2020, first driven by the lockdown-induced
chaos on supply chains, and then exacerbated further by the war in Ukraine,
the collateral damage of China’s Zero Covid policy, and a chronic labor
shortage in most industrialized countries.
The markets do not react when they are mass-hiring people to capture
consumer demand. They do not react to the fact that Microsoft, for example,
seems to be laying off people almost every year. In 2020, CEO Satya Nadella
called for a “referendum on capitalism,” telling businesses to start to
grade themselves on the “wider economic benefits they bring to society,
rather than profits.” To be clear, this was four months after Microsoft laid
off 1000 people, one year before they hired 23,000 people, and a few months
after which they laid off 10,000 people to “deliver results on an ongoing
basis, while investing in [their] long-term opportunity.”
Everything Ventured, Nothing Gained
Before these companies reach the public markets, they are fueled by an even
more violently reckless form of funding - venture capital. Venture
capitalists are regularly incentivized to create businesses that look
valuable but aren’t necessarily of value. When I wrote about the Liches of
Silicon Valley last year, I remarked upon how many valley companies
experience volatile, erosive cycles of growth with the goal of being
acquired or going public, burning as much venture capital as it takes to
find an outcome:
They repeat a very specific cycle - company is the next big thing, company
is now worth over a billion dollars, company is experiencing “unheard of
growth” (with no question as to whether they are sustainable or profitable),
company is now challenging ‘the big dogs’ of industry, a little M&A, an
absolutely insane valuation, and then a sudden realization that actually,
perhaps this wasn’t a good business at all? I am hammering on TechCrunch
links here because I am being lazy - they are far from the only outlet to
assume that a company like Brex would not simply run itself into the ground
through virtue of existing - but the path is always the same - growth,
growth, growth, legitimization, growth, growth, acquisition, and then an
eventual reckoning with real life.
Venture pumps millions or billions of dollars into ideas that might sell a
product or a service, but ultimately resemble things that can be sold to
other companies or put on the public market for a profit higher than what
was paid on a per-share basis. I once suggested that Silicon Valley
conflated “making great ideas work” with “making ideas I like work,” but on
consideration, many of these companies aren’t even things venture
capitalists like - they are things that resemble things that they can sell.
Do I genuinely believe that everyone who invested into the Web3 grift was a
strident believer in the brave new decentralized economy? Hell no. They just
went where the winds blew — or where they seemed to be blowing.
Andreessen Horowitz was the lead participant in arguably the biggest con in
venture capital, pumping billions into Web3 companies that didn’t have any
real product, but stapled together enough buzzwords and websites to resemble
actual entities. A16Z found a way to vastly accelerate the
idea-to-business-to-profit cycle of venture. Despite claiming it was “Time
To Build” in 2020, Andreessen Horowitz realized that there wasn’t ever
really much of a need to build at all - you could create things that
semiotically aligned with what “valuable” looked like and profit off of
that. While the public markets may (at least, before the rise of the SPAC)
have required some sort of business - even if said business wasn’t graded on
being a “good” one - the cryptocurrency markets allowed the vaguest of ideas
to get even vaguer valuations.
This same insipid thought process applies to the rest of their portfolio
too. Adam Neumann, a guy who is most famous for running WeWork into the
ground, got a second at-bat with his new startup “Flow,” a company that
Neumann is still not able to fully describe, but that may involve you
renting to own an apartment that Flow owns somewhere at some point. Just
like Silicon Valley can’t help itself from reinventing the bus, Neuman is
seemingly attempting to reinvent the rental market — a diseased,
exploitative industry in its own right — in his own image. He’s replacing
one cancer with another, only even more aggressive and metastatic.
Neumann was, is, and will always be full of shit. Appropriately, in a video
A16Z released yesterday, Neumann used the following analogy to describe
Flow:
The founder turned to a toilet metaphor to explain one aspect of his idea
of ownership. “If you’re in an apartment building, and you’re a renter, and
your toilet gets clogged, you call the super,” he said. In contrast, “if
you’re in your own apartment, and you bought it and you own it and your
toilet gets clogged, you take the plunger.” For Neumann, fixing up your own
apartment means shifting from “being transactional to actually being part of
a community” and “feeling like you own something.”
In a functioning society, Adam Neumann would not be given a single dollar.
This quote proves that he has never unclogged a toilet, because in the event
that you could unclog your toilet in an apartment you rented, you’d probably
do it. If the clog was so severe it required the super, you would probably
still call a plumber if you owned the place, because your nasty business has
created a problem you cannot solve.
What I am suggesting is that Adam Neumann doesn’t know anything about home
ownership, or unclogging toilets, or toilets, or the regular experience of
being a human. Yet he is given unfathomable amounts of capital to address
problems related to these things, because he has the resemblance of the kind
of messianic white guy that is able to take a product and sell it, even if
he is quite literally the guy who failed to do this before.
Neumann turned a (nominally) $47bn company into a $2.9bn company. In a sane
and just world, he wouldn’t see a dollar of funding for the rest of his
life.
There are tons of other examples of colossally stupid assholes and stupid
ideas getting money. As I wrote about on Monday, the largest investment
rounds of the last few years have gone to companies that got obscene
valuations based on nothing other than a vague sense of them “looking like a
winner.” There is no reason a weight loss app should need $540 million to
operate - that is not a sustainable enterprise considering the entire weight
loss industry is worth about $3.8 billion. Clubhouse was never worth the
billions of dollars pumped into it, considering the entire radio industry
only makes about $12 billion a year combined. While capital is required to
get a company off the ground, the only way to justify these massive surges
of capital is that venture capitalists are putting companies on life support
in the hopes that they can flog them for a profit.
And this corrosive capital system gets continually rewarded. Companies like
Uber are taken public, making massive windfalls for venture capitalists
without ever having to run a profitable business. Venture capitalists
crammed $41 billion into crypto in the space of 18 months, despite there
being no real use cases for crypto. Metaverse companies raised $120 billion
in 2022 for a concept that has yet to really exist, and perhaps never will.
Yet these concepts get vast amounts of money because venture capitalists are
incentivized to pump cash into “good companies to invest in” over “good
companies.”
As my friend Kasey put it in a recent conversation, growth is a fire. If
you build a nice, sustainable fire, it’ll keep you warm, cook food and
sustain life. And if the only thing you care about is how big your fire is,
then it’ll set fire to everything around it, and the more you throw into it,
the more it’ll burn. Eventually, you’ll have nothing left, but if you
desperately desire that fire, you will constantly have to find new things to
burn at any cost.
And we, societally, have turned our markets and businesses - private and
public - over to arsonists. We have created conditions where we celebrate
people for making “big” companies but not “good” companies.
Venture capital and the public markets don’t actually reward or respect
“good” businesses or “good” CEOs - they reward people that can steer the
kind of growth that raises the value of an asset. Elon Musk’s success with
Tesla didn’t come from the inarguable point that he ended the monopoly of
the internal combustion engine - it came from his canny manipulation of the
symbolic value of a stock through lies and half-truths, meaning that there
was always a perpetual reason that Tesla was a “growth” company and a “good
stock to buy.” Sundar Pichai isn’t paid $280 million a year because he’s a
“good CEO.” After all, Google has all but destroyed its search
product. He’s paid because he finds ways to increase the overall growth of
the company (even while their cloud division still loses money), and thus
the stock goes up.
The consequences are that these companies will continue to invest in things
that grow the overall revenue of the company over all else. They will
mass-hire and mass-fire, because there are no consequences when the markets
don’t really care as long as the company itself stays valuable. Venture
capitalists certainly don’t mind - after all, it’s “less burn” to “get you
through” tough climates that were arguably created by the poor hiring
decisions of a company that was never incentivized to hire sustainably or
operate profitably.
Until we see a seismic shift in how major investors treat the companies
they invest in, this cycle will continue. I guarantee that we will see each
and every one of the companies doing mass layoffs do mass-hirings in the
next few years, and then do another mass layoff not long after, because they
are simply treating human capital as assets to be manipulated to increase
the value of a stock. They are not structured to evaluate whether the
business is “sustainable,” because their only interest is seeing their
current profits grow by multiples that please Wall Street.
“Good companies” should not have to repeatedly lay people off. They should
not be mass-hiring for fear that the demand they are capturing is temporary,
and those new employees will soon find themselves at the receiving end of a
pink slip.
The lens through which we evaluate businesses is cracked, and until we fix
it, we will continue to experience these punishing cycles of binging and
purging on human capital.
This is the problem at the center of almost everything I’ve written. Why
are bosses mad they can’t bring people back to the office? Because their
alignment of business success isn’t really tied to profit or “success,” but
rather the sense that they are “big” and “successful,” which requires a
bustling workplace and “ideas.”
Why did billions of dollars get pumped into crypto’s countless
non-companies? Because “success” as defined by capital has been reframed to
mean “number go up.” As a notion, it is divorced from any long-term
thinking, fiscal probity, or even what you and I would call
“morality.”
Why did these companies never seem to get blamed for hiring and then
quickly firing tens of thousands of people? Because at the heart of the
business media and the markets, workers were necessary casualties of the
eternal struggle for growth. Layoffs are inevitably reported as a large
number (“10,000 employees at Microsoft”), which makes it all too easy to
remove the human element. When confronted with numbers of this scale, it’s
easy to ignore the individual human agony that comes with losing a job. The
uncertainty and shame that follows a firing.
The truth is that nothing lasts forever. Companies can (and should) die —
or, at the very least, understand that there is an inevitable limit to
growth, and eventually they must reconcile with being a stable, albeit
plateaued, business.
A product may be profitable for a while, but there is a line at which
profitability comes at the cost of functionality, and your company may
simply not be able to grow more. A business that cannot generate profit is
not a good business, and a business that can never generate a profit
deserves to die.
And the net result of all of this is that it kills innovation. If capital
is not invested in providing a good service via a profitable business, it
will never sustain things that are societally useful. Companies are not
incentivized to provide better services or improve lives outside of ways in
which they can drain more blood from consumers. And the street doesn’t care
either - just look at Facebook and Instagram, two products that have grown
endlessly profitable and utterly useless in the process.
If capital wishes to call labor entitled, capital must acknowledge that it
is the most entitled creature in society, craving eternal growth at the cost
of the true value of any given service or entity.
