A Decade of 'Software Eating the World' with Marc Andreessen
Why "scarce" natural resources will never run out, how to climb the skills ladder and a powerful piece of advice for Gen-z's starting their career.
Last night, the Good Time Show hosted by Sriram and Aarthi, and joined by Steven Sinofsky, on clubhouse brought back the incredible “Tech Talks” they had earlier this year. This time the special guest was the man, the myth, the legend himself: Marc Andreessen. The event pulled a large audience of over 2,000 listeners, the majority of whom stayed for the entirety of the 80+ minute episode.
Climbing the Skills Ladder
“This is a topic that can be sensitive at times. I grew up in the frozen tundra of Wisconsin, where I worked minimum wage jobs for 8 years. So I’ve been there.”
The famed venture capitalist, Marc Andreessen, said as he was making a point about technology improving the quality of life for the lower class.
”There’s a really important thing that’s easy to forget: the lower income someone is, the more they tend to benefit from technology. The less you make, the higher percent of your income you spend on basic goods. Technological advances in the economy translates to productivity growth. Productivity translates to lower prices for consumers. Lower prices for consumers translates to the equivalent of a raise. If you slow down technological advances, you are impairing the ability of lower income people to climb the skill ladder.”
Sriram asked “So how do you climb the skill ladder?”
“It’s not that easy to apply and get accepted to Stanford. Most people don’t have those opportunities. It’s also a practical issue - universities just don’t accept that many people. One of the gigantic opportunities is online education, particularly for technical skills. And now pair this with the online economy. If I can get my education online and work remotely, I can climb the income ladder a lot easier than it’s ever been before, even being from a small rural town where opportunities may seem scarce.”
Marc went on to talk about the disconnect between the elite who has these discussions about improving the economic opportunities for lower income families and those families themselves, who are the people actually impacted by these policies.
Aarthi asked “How much of that is people thinking the world is an even sum game.”
Marc replied: “The majority of the people in the “elite” who claim they’re representing people of lower income, they actually think they are. I believe people generally have good intent. The finite game fallacy is this 1-dimensional view. That there’s a limited number of money and resources in this world. As a consequence, you have this fundamentally marxist idea that if you’re going to talk about money, it’s either we’re going to get it or they’re going to get it. The more you understand the economy, the more you realize this view isn’t correct.”
Supply and Demand of Natural Resources
Sriram: “Could you elaborate on natural resources since many of those are actually finite and people would argue that they definitely won’t last forever.”
Marc: “There’s this interesting thing that happens—people will freak out when they think a natural resource is about to run out, and you never actually run out of those things. The price changes according to supply and demand. Let’s take oil for example. So if you have a surplus, prices fall. If prices fall, the people extracting the oil have less incentive to do so, therefore they stop extracting oil. Then the supply declines, so prices rise. Basically you have this feedback loop between the consumers and the people extracting a particular resource. When oil is about to run out, the prices will shoot up.
All the books that came out around 2000 predicted that oil would disappear. You start to realize, when that thing gets really rare. People think “Oh shit, there’s not that much left!” Prices shoot up. Think about what happens to the incentive to do solar plants, or nuclear plants, all of a sudden, all kinds of alternatives to that all of a sudden become cost effective. Solar is a lot more economically appealing when oil is $200/barrel than $10/barrel. Any commodity running out, causes the price to skyrocket, which causes people to seek out alternatives, and then of course it lowers demand for that commodity which of course drives the price back down.”
Software is Eating the World
The title of this article (and this section) is named after one of the most famous essays of the tech world in the past decade, written by Marc Andreessen himself. You can read it here.
Sriram asked: “About a decade ago, you wrote ‘Why Software is Eating the World’. Now that it’s been 10 years, how would you score it in regards to its accuracy in predicting the way things have played out?”
Marc: “I would write the same exact essay today. I would actually double down on the same trends today, they’re not just increasing, they’re compounding. I think the way to think the best way to think about the argument is in 3 parts:
Part 1: Things that aren’t software are becoming software. Cars are becoming much more software based than 10 years ago. It’s not going to be completely software, but a large part of it will be.
Part 2: The companies that produce/sell those products and services have to become software companies.
Part 3: The third and most controversial point is in every market, over the long run, the leading company is going to be the best software company.”
Sriram: “One of the largest critiques I’ve heard is that not everything will become software.”
Marc: “There are a lot of things in the real world that actually have become software. Think about renting a movie—you used to have to go to blockbuster, and now you can do it without ever getting off the couch. Think about the App Store, a huge number of apps are substituting for some things you would’ve had to buy or do manually years ago.
Another way to think about it is that software can be used as a lever for the real world. Think about Uber & Lyft: a programmer sits down, writes software, and now the real world completely reconfigures themselves around this. The way people call for a ride has completely shifted. The closest historical comparison to this, is a concept from 300 years ago called Alchemy. It was this idea that everyone was poor yet we have all these raw materials like lead and gold, and somehow you could convert those into wealth. Isaac Newton himself spent like 20 years trying to crack the code of turning some basic material into some material that could make you rich. Software is the closest thing to this. Every public software company is like this. Steven’s software company Microsoft is a prime example of this: $2 trillion market cap. Software is a lever for being able to make the world a more flexible, adaptable, safer, and better place. I think we need to use software as much as possible in order to continue enhancing the world.”
Steven: “Where do you see AI landing in terms of being a broadly used tool versus being a disruptive force that causes a lot of the troubles that people think it causes today.”
Marc: “This concern about AI is the same concern people had about computers 50 years ago; that the computer is going to replace human work and we’re all going to be unemployed. This is why people didn’t want machines in factories initially. It’s the latest version of the same argument. First of all, you want to put your historical hat on: Every step of the way, a technological advancement that replaces jobs, almost always has resulted in new, higher paying jobs. There was a time where being a blacksmith was no longer a viable business.”
Sriram: “That was not fun for the blacksmiths at the time”
Marc: “The argument is that “These are terrible jobs and they shouldn’t exist” then people turn around and fight for the complete opposite side saying “How dare you try to build this technology that will replace all these jobs.” If you’re a normal person thinking about having kids, what you want is a future of opportunity. Or if I was a factory worker, I don’t want my kid to have to work in a factory, I want them to be able to work in an office. You don’t get the new jobs without the technology. What you’re doing is cursing all of the current people and the future for their children. This is not a dilemma that the elite have at all. The real kicker is that you would think all of the anxiety and press around this issue would subside after the past few decades, but you still have people saying “Yeah I understand the people of the past, but this time it’s happening for sure.” There’s a way to measure the change each year, it’s called productivity growth. In the past few years, there’s been a decrease in productivity. What you want to look at is the gross job creation and gross job destruction. Jobs are being created and destroyed at a slower rate than 40 years ago. Job creation, destruction, entrepreneurship, is slowing down. The economy is actually slowing down. If we had more disruption, we’d have faster job growth and income growth.”
Steven: “I’m fascinated by that duality of argument. The same has been used with the ever-increasing scale of retail. Business that’s been upended by e-commerce. Each time, people got a better selection of products and better prices but companies saw it as super evil because it was putting them out of business.”
Technology as a Net Positive Force
Marc: “I was reading one of these economic reports recently on new business formation in the US. The entrepreneurship rate in economy has slowed down. However, in the last 8-9 months there’s been a dramatic surge in new-business creation in “non-physical retail” category, which is essentially a small business that sells a product online. It turns out that what everyone thought it took to be a mom & pop retailer has changed. The economic opportunity for physical retail is limited to people who live nearby. Now that you have Shopify and Stripe, all of these companies are selling online and their customer base is the whole world. Does it screw someone’s life who’s running a physical retail business? Yes. Does that also create an enormous amount of opportunity for them? Absolutely!
What you see happening is as income levels rise, people’s pace change. 40 years ago it was a big deal to get machine-made shoes. Now shoes made by a machine are common and cheap, so if you want to stand out, you buy hand-made products. The more money people make, the more stuff they buy that’s hand-made. It’s a reversion. That itself is becoming a mass phenomenon (think Etsy). Craft breweries and whiskies are exploding. A lot more discretionary spending allows people to buy a lot more hand-made products and the internet allows the craftspeople to sell to a global market, instead of just people who are physically in their local region.”
Sriram: “You always seem to be so optimistic about technology and the future. Where does your optimism come from?”
Marc: “Honestly, it’s mostly from history. The deeper you go in history, the more you appreciate what you have today. For thousands of years, life was so hard. The only thing that got us out of those times was the ability to build tools. It started out with something as basic as the wheel, then machines, then computers. If you look at long-term GDP & quality of life, it was this flat line until 300 years ago. Really fundamentally, the systems that we have that cause the quality of life to rise are technology and markets. If you go back to January of 2020, we had the best economy in the history of the planet. The most jobs and highest wages in the history of the planet. Now it got set back by COVID, but the system works really well. The default assumption has to be that it continues to work.”
The Future of Venture Capital: East Coast vs. West Coast
Sriram: “What do you see the future of venture capital looking like, with so many people leaving silicon valley for the east coast.”
Marc: “There’s what I like to call the little boy big boy problem. Palo Alto is the little boy, NY is the big boy. Silicon Valley has historically been the best place to start a tech company. We start the companies and then we hand them over to NY (NYSE, Nasdaq, mutual funds, etc.) you essentially shift coasts. At that point, most of the money & influence is in NY. Love or hate VCs, but our convos with founders is always about how to make technology better and how we can help them succeed. The Wall Street people, are having very different conversations. So what I’m wondering is, can Silicon Valley step up and support these companies longer. Maybe they can continue to innovate for longer periods of time. 18-months ago Silicon Valley was a place, network, and philosophy at the same time. Maybe that’s about to change.”
Marc’s Advice to Gen-Z
Sriram: “One last thing—a lot of people watching this are young (early 20s), what advice do you have for them?”
Marc: “Whatever you do, don’t follow your passion. Your passion is probably really dumb. It probably will make a great hobby. Generally speaking, passion is an egocentric way to think about things. It’s all about “me”. The big thing is the opposite of that—it’s to be able to make a contribution. There are all these things happening in the world. All these things that need to be built. All these companies that need help. Where can you contribute the most and where can you help the most? How can I actually make our customers better off? How can I make this market better off? How can I make the people around me better off? That’s the advice I wish everybody got in their early 20s.”
Aarthi: “There’s so many books talking about “Follow your passion, follow your heart. Drop everything and go after them.” We never had that growing up.
Marc: “I just went to a children’s book store in LA with my kid and I was fucking appalled by what I saw.
Aarthi: “Why do you think that happens?”
Marc: “Who are the people writing successful children’s books? They’re all elites. They’re all highly successful. They’re all egocentric. They think they’re doing great cause they’re following their passion. It’s like asking a friend “Why is your company so great?” and they reply “It’s the ice cream and free massages.” It’s actually the opposite. You can afford the ice cream and massages because the company is successful. Succeed first, and then write the children’s books.”