After diffusion

The new Stratechery essay by Ben Thomson, The End of the Beginning, raises the possibility that was also hinted at in this space (Childhood’s end) a few days ago.

Unlike here, where the comment was more general and left at what it was, Ben delves into the tech rationale, and by his analysis finds that the current state isn’t part of a cyclical phenomenon, but in itself a natural endpoint to a sequence in computing evolution that began decades ago (or more). Ben’s summary illustration is below [red arrows added]…

And his conclusion is as follows…

In terms of what comes next, Ben’s view is similar to that shared in another earlier post here (The maturation decade): a period of expansion in the sense of growing adaptation, or re-adaptation, where all the possibilities enabled by the diffuse tech are internalized and come into their own.

Stratechery – The End of the Beginning

If these views are correct, the question that would follow is about the impact of it all on financial markets. There are economic consequences that the markets price; there are differences in liquidity, asset class and capital structure; and beyond the referenced companies and a few more that stand to [continue to] gain, there will be differences in risk assessment of all the others.

In particular, one wonders how the new reality will reflect on venture capital, the original funding source for most technology advances that have led to where we are, and which in recent years has massively expanded, almost as though we might be at the start of a new beginning.

In fairness, the uses of the big liquidity have been aimed towards the middle, even the late-middle, of the business cycle rather than its start, but the outlet into public markets has nevertheless drawn attention to its overextension… from which one notable pack leader has already begun to pull back.

And since the ultimate funding for all markets, whether private or public, comes from the same general sources, there is the growing possibility that money leaving one area will find itself in the other. In short, it is conceivable that concentrations of a different sort will follow, and possibly self-perpetuate, just like a network with effects that follow power-law principles.