Could layoffs and lawsuits portend the end of web2?
January 27, 2023
Exploring transformation of value in the digital age
By Michael J. Casey, Chief Content Officer
Was this newsletter forwarded to you? Sign up here.
As someone interested in Web3’s promise of decentralization, it’s hard not to read about big trends in the internet economy without wondering whether it portends a shift to it. I’m not sure that the recent financial woes at Meta Platforms, Google and Microsoft rise to that level of impact, at least not yet. But it felt like a worthwhile thing to explore in this week’s column.
This week’s podcast is based on a recording in Davos last week with Stan Stalnaker, the founder of Hub Culture, in which we talked about the social network’s digital currency Ven, which dates back to 2007, about its new AI chat bot, Zeke, and about Stalnaker’s vision to back money with nature.Have a listen after reading the newsletter.
Tech’s Money Woes: Beginning of the End for Web2?
(Rachel Sun/CoinDesk)
After two decades of dominating and reshaping our lives, “Big Tech” is finally looking weakened.
This week, Microsoft gave a gloomy forecast of 2023 enterprise demand for its Azure cloud services, while the Department of Justice (DOJ) served Google with a lawsuit that could end its monopolistic advertising operation. Add to that the chaos at Twitter since Tesla owner Elon Musk took over and Meta’s dismal stock performance as its earnings plunged in 2022, and we find broad-based malaise across the industry that brought us Web2.
The question is whether this is just a cyclical phenomenon or whether it’s a secular shift, the end of an era for the titans of Web2. And if it’s the latter, what comes next?
A cyclical phenomenon
The lax monetary environment before 2022 drove these firms to invest massively in new, pre-mainstream technologies such as AI and virtual reality. Now, as rising interest rates force their clients to reduce spending on these companies’ cash-cow product offerings, such as online advertising and data storage, they’re forced to curb their outlays.
Seen that way, this is just a downsizing exercise, one that will put Big Tech in a healthier position to capitalize on the advance of the new technologies once they gain mainstream application.
A secular shift
But it’s noteworthy that cyclical financial weakness coincides with declining public trust in the tech industry, a trend that could portend a more lasting, secular decline in its prospects. After all, public opinion drives political response and, arguably, Big Tech’s greatest vulnerability lies in Washington, D.C.
In April, the annual Edelman Trust Barometer showed that in aggregate, trust in technology industries remains higher than others worldwide (including lowly thought-of media businesses, sadly.) But the key takeaway was that in the U.S., whose policy making apparatus has the greatest power to determine the industry’s fortunes, trust in tech hit an all-time low.
What’s next
Those who want to see a Web3 economy in which centralized internet platforms have less influence over our lives and where people and businesses have greater control over their data and content are naturally hopeful Big Tech’s woes are the precursor to a brighter future.
But it could just as well be that this moment of distress passes and we either return to the status quo or a new architecture arises around artificial intelligence (AI) and metaverse technologies that’s overrun by the very same centralized firms dominant today. Consider the breakout AI platform, GPT Chat, founded by Elon Musk. While it could upend Web2 and Google, it has Big Tech investors like Microsoft.
Or consider that, even if these corporations lose, we could end up with a nominally decentralized entity dominating everything, such as Ethereum, the leading platform for NFTs and decentralized finance.
If we want a decentralized internet and don’t want our lives manipulated by AI and by data-mining, centrally controlled public and private entities, we’re going to have to band together and insist on it. We need laws, standards bodies and multi-stakeholder governance systems in place. There’s a lot at stake.
Explore the policy fallout from the 2022 market crash, CBDCs, stablecoin regulation, the challenges in applying 20th century securities laws to 21st century decentralized protocols and more at the Consensus 2023 Crypto Policy Forum. Use code FM15 for 15% off your pass. Learn more and register.
Off the Charts: What Goes Down Must …
If you’re wondering why now, in the first month of 2023, bitcoin has had such a stellar recovery – up 40% year to date – look no further than this chart from NYDIG.
Bitcoin was by far the worst 2022 performer of a long list of asset classes tracked by the crypto financial services provider. In the absence of anything concrete, many portfolio managers will use such comparisons to determine whether something is under- or overvalued and reweight their holdings accordingly.
Note: Such a comparative reweighting does not mean investors are piling in for the long haul, or that the gain will necessarily go any further than it has in this rally.
If the broader market can recover – if, say, inflation shows more signs of softening in the next consumer price index report and investors gain confidence that the Federal Reserve will slow its rate-hiking campaign – then bitcoin’s momentum could continue. If not, this month’s gain may be all the bulls can hope for, for now.
The Conversation: Royally Screwed
If, like many people, you don’t have time to read the Department of Justice’s 158-page lawsuit against Google (referenced in the column above), do read this great tweet thread from Digital Context Next CEO Jason Kint. It lays out why, in Kint’s words, Google is “royally screwed.”
Relevant Reads: Policy Week
Another CoinDesk “theme week” dropped. This time it’s Policy Week, with articles, opinion pieces, videos and other content focusing on the issues surrounding the regulation of crypto and blockchain tech and the politics associated with it. Here’s a sample of pieces that run as part of the package:
Emily Parker, CoinDesk executive director of global content, wrote about the surprisingly pro-crypto regulatory stance from Japan. The country’s experience with Mt. Gox and other early crypto scandals led it to set tough standards early on, which held it in good stead during the FTX crisis and now means it now feels confident to constructively engage with the sector while the rest of the world is getting tough with it.
Marc Hochstein, CoinDesk’s executive editor for Consensus, offered up his own simple Glass-Steagall-like solution for regulating centralized crypto exchanges: a mandate that custody and exchange functions cannot be run by the same entity.
CoinDesk contributor Jeff Wilser interviewed Tom Emmer, the Republican Congressman from Minnesota who was recently was named the House Majority Whip and who has been dubbed the “Crypto King of Congress.” (Disclosure: if you read the piece, you’ll see that I played a minor role in Emmer’s crypto conversion some years ago.)
