This Is What Happens to Silicon Valley in a Downturn

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, you know, I don't know what's going on right now with the broader...

Tracy Alloway (0:22)

Sorry, I'll let you finish.

Joe Weisenthal (0:24)

Well, there are so many different ways that sentence could have gone.

Tracy Alloway (0:27)

We could start every episode with, I don't know what's going on.

Joe Weisenthal (0:30)

Anyway, I don't know what's going on right now with the broader American economy, but I do sense that the tech industry, Silicon Valley, is in a real downturn.

Tracy Alloway (0:40)

It seems so.

I shouldn't laugh because obviously, for a lot of people, this is very, very serious. We've had a number of tech companies coming out and saying that they're gonna be firing literally thousands of people in this downturn. And what's kind of remarkable about it is this is something a lot of people were kind of expecting. These are all growth companies. They tend to do very, very well during periods of low interest rates. Once rates start going up, we see the pressures sort of added on and then we see these cyclical downturns.

Joe Weisenthal (1:15)

Right, and you know, like the story of the 2010s with tech was really the first industry to come sort of roaring out of the gate and that recovery and the broader US economy never had a great recovery in that decade, but tech was absolutely booming. And so there's this flip. And you know, the other thing is like, when I think of Silicon Valley or tech, you know, I have certain ideas of like what a boom looks like and all these like amazing perks and free dry cleaning and free steak dinners if you stay at the office and free...

Tracy Alloway (1:44)

Free bean bags.

Joe Weisenthal (1:45)

Yeah, free bean bags, all of it. I don't have a great intuitive sense about what a downturn looks like at Silicon Valley.

Tracy Alloway (1:52)

Right, and I think it's never really been promoted as part of Silicon Valley. It's always, you know, come to this place, create a startup out of your garage or whatever and become a billionaire and enjoy all this money and all these perks.

But as we just mentioned, it is a cyclical industry. There are as many downturns as there are upturns at this point, and yet they don't get as much attention.

Joe Weisenthal (2:17)

No, there's definitely, it's a boom bust industry. And you know, I've talked about many times, my first memory of markets was during the.com bubble, and then there was the bust, and we sort of forgot about tech for a while and all these companies, but they kept plugging away. But yeah, I don't know really what happens to this industry in a downturn. And I think it's like an interesting question. I don't know when it'll rebound, but right now we're definitely in one.

Tracy Alloway (2:40)

Yeah, so we have really the perfect person to talk to us about previous downturns.

Joe Weisenthal (2:44)

That's right. So we met this guest recently, we were out at the Berkeley Forum on Corporate Governance, and we talked to her there, and we just had to talk to her again for the podcast itself, because it's very interesting, someone who's very informed on this question. We're gonna be speaking with Margaret O'Mara. She is a Professor of American History at the University of Washington, and she is also the author of the book, The Code, Silicon Valley and the Remaking of America. So a great person to talk to about the history of the valley, the history of tech and all the changes it's undergone. So Margaret, thank you so much for coming on the Odd Lots podcast.

Margaret O'Mara (3:21)

It's great to be here, thanks for having me.

Joe Weisenthal (3:23)

Yeah, we had to, after chatting with you recently out in San Francisco, we had to have you on the show. So, you know, we do have this idea of like what tech and what these firms do in the boom times. And it sounds pretty great. Sounds pretty fun. Makes everyone want to flock to San Francisco or the valley and be part of this world.

But we don't really talk about the other side as much. Instead, we sort of forget about it. But obviously, for every boom, there must be a bust.

Margaret O'Mara (3:53)

Yeah, what goes up must come down, which was actually, I was reminded that was a theme song of one of the many commercials of pets.com, which was maybe the emblematic bomb story of the last big notable downturn in tech, which was the.com boom and then the.com bust. Yeah, this is a cyclical industry. It grows fast, grows hot, and then there's a cooling period.