While their competitive advantage propelled them to global dominance in the period from 2005 to 2016, leaving all challengers in their wake, Google, Facebook, Youtube and Twitter, like most high growth firms had the luxury of enjoying powerful expansions, so they focused on the competition, not internal management issues. So as one would expect, they continue to pay minimal attention to internal factors such as organization structure, management systems and corporate culture. And because these firms have never experienced “a recession” or a prolonged period of weakness, their management teams have never been tested – remember when the Facebook crisis hit in 2016 and Mark Zuckerberg disappeared, keeping investors and market experts (and even his staff), in the dark and confused? Any good corporate communication department would have leadership in front of cameras calming down the public and investors. The lack of experience demonstrated by Mr Zuckerberg was obvious.
A major Tech Recession looms as top FAANGs and Tech names have fallen for 3 weeks now. Twitter stock has declined 44%, Facebook down 31%, Electronic Arts down 36%, and Netflix down 23% from their recent highs. A pullback of 20 percent means these stocks are officially in bearish territory.
So the powerful expansion for a decade has given these firms, some clearly lacking the key skills to manage in a downturn, a false sense of security, and a tone of arrogance that comes with winning, and winning. These firms, through stock options and other financial incentives have kept staff, especially at the senior management level – Facebook`s senior managers have been at the firm an average of 9.5 years, better than the average of S&P 500 firms which CEOs are on the boards for an average of 6.8 years. But there seems to be changes taking place and as rapid expansion fades, these firms, all living and playing together after starting up in a 50 kilometer piece of real estate in the Bay Area, will be forced to view each other differently as they fight for customers and talent in the future. Their downfall will be accelerated by lower growth, Chinese completion and the market shocks in the past 3 weeks. Tech is being decimated.
In no way, shape of form are these social media companies guided by senior managers who have decades of experience in market or industry recessions. Most have never navigated a company through a bear market.
Twitter has lost 7 of the top 10 members of the executive team since the start of 2016. Snapchat and Uber have lost senior executives with Uber suffering an exodus of managers in a 2016 scandal. And more recently, Jan Koum, the CEO of WhatsApp, left in April, along with the other founding partner of WhatsApp, who seemed happy to walk away from $850 million, reportedly due to disagreements with his new bosses on how client information is handled (a theme that now runs through this industry). Also, keep in mind that some engineers are leaving or are asking to be transferred to other parts or entities of these mega-firms. Data privacy concerns have dominated discussions that are focused on departures from most of these firms.
Again, one must question the ability of these companies to weather the storm of internal pressure from a cultural shift – the monoculture from the Bay Area will, in the end force these firms to change or lose valuable employees. More importantly, the industry is moving into recession and at the same time will be under pressure to embrace free speech as the White House leans on them.
The Destruction of Traction Silicon Valley Globalist Elite has arrived.
California verus Texas – in the past 10 years, due to taxes (13.2 percent for those making over $250,000 in California, zero in Texas for state taxes), overregulation and an explosion in poverty, and collapse in the education system in California, over 9,000 companies have left California for Texas, Florida, Arizona and a host of other states. Lower taxes and easy startup costs make Texas and Florida ideal destinations for new businesses. In short, the San Francisco Bay Area seeing an exodus. Peter Thiel, the conservative founder of PayPal and a personal advisor to the US President Donald Trump has left San Francisco in this exodus.
CEO Zuckerberg sees the problems within his companies – many having been accused of inhibiting free speech by firing those who reject group think or San Francisco Bay left wing politics. So Mr Zuckerberg has opened his company for government oversight. The values of major social media companies are not the values of free speech – and public now understands this.
In sum, the most recent Tech recession that started three weeks ago, cultural changes from within as more employees do not tolerate the groupthink required by these firms and the continued pressure from the Trump White House will force some of these companies to suffer severe damage.
And while these companies start to break apart, they will be met with stiff competition from new Chinese companies that may, just may, embrace free speech, taking market share in a strong and non-stop challenge to the inexperienced leaders of Twitter, Facebook and Google – prepare for the tech and social media recession.