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Commentary: Cory Doctorow: The Age of Vapor [locusmag.com]:

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Making up imaginary new technologies is a fun game – so fun that we’ve built a whole genre around it. Even more fun is making up the social arrangements of those technologies – imagining who will use them and how. Think of Gardner Dozois’s quote: “Most SF can predict the car, some SF can predict the drive-in theater, but SF that can predict the changes in teen-age sexual behavior as a result of the drive-in is vanish­ingly rare.”

Thought experiments are great. They can be inspirational – or cautionary (“Cyberpunk was a warning, not a suggestion” – W. Gibson). They can be both.

What they are not , however, is investment advice.

Speculative technological narratives are not limited to science fiction. They play a critical role in the tech industry, and that role has increased dramatically in this century.

In the late 2000s, American tech giants be­gan to saturate their markets, and as a result, their long run of meteoric growth looked set to end. After all, once Google had a 90% market share in search, how was it to continue grow­ing? Sure, they could raise a billion humans to maturity in the hopes of turning them into Google users, but Google Classroom was gon­na take 10-15 years to pay off, and Wall Street wants to see growth now .

Wall Street is the key impetus for these companies to continue grow­ing. Wall Street values “growth stocks” at a much higher multiple than “mature stocks.” That means that two companies with the same income and the same profit can have wildly different valuation – if one of them has been holding steady for years, while the other continues to grow every year. A share in a company is a claim on its future profits, after all, and the future profits from a growing company are larger than the future profits from a company that has reached a steady state.

Edward Abbey famously observed that “Growth for the sake of growth is the ideology of the cancer cell.” But for companies exposed to the financial markets, the imperative to continue growing isn’t the ideol­ogy of the cancer cell. It’s not an ideology at all. It’s a purely material phenomenon.

Because the corollary of the idea that a growth stock is worth more than a mature stock is: When a growing company saturates its market and stops growing, it suddenly becomes grossly overvalued. The com­pany is no longer a growing concern, so it should be revalued as a ma­ture firm. In practice, that means sudden, dramatic selloffs of company stock. Think of what happened to Meta in January 2022, when Mark Zuckerberg disclosed that the company’s US growth wasn’t as high as they had predicted. This news – a mere slowdown in growth! – triggered a panicked selloff of Meta stock, which plunged 25% as $240 billion was wiped away in a single day (at the time, the largest drop in corporate valuation in world history).

This is bad news for Meta investors, of course, but it’s far worse news for Meta’s executives. After all, Meta executives are largely compensated with company stock, so a 25% drop in the stock price is roughly equiva­lent to a 25% drop in top executives’ personal net worths. This kind of stock slump can easily induce a mass exodus of the most employable, most sought-after executives and employees in the company, which means that a company that tips into this kind of nosedive will find itself with fewer and fewer skilled technicians to help avert the crash.

That’s just one way that a slumping share price makes growth far harder. But it’s even worse for the company itself: After all, one of the surest ways for a company to grow is to buy another company, and if your stock price is buoyant, you can buy that company in a stock-swap, which means your company can hoard its cash to spend on other things (marketing, real estate, capital, dividends, buybacks). But once your stock starts to dive, no one wants to trade their company for it, which means that the newly mature company can only achieve merger-based growth by parting with its precious cash.

So any company that is in danger of saturat­ing its market needs to have a powerful narra­tive up its sleeve about how it will continue to grow. The alternative is serious – and possibly fatal – financial calamity.

This is why companies like Google started to make showy announcements and internal full-court presses to invade the markets that had been claimed by other firms. In 2011, Google announced “Google Plus” (G+), a Facebook-like service. The not-so-buried subtext of that launch was “Google is about to absorb Facebook’s market, too” (perhaps the “plus” meant “Our market will be Google’s plus Facebook’s”).

There are plenty of narrative advantages to announcing your intention to capture Face­book’s market. For one thing, it’s very easy to determine how big Facebook’s market is – you just have to look at its latest balance sheet and say, “That’s how much bigger we’ll be once we wipe out Facebook.”

But there’s a downside to pegging a narrative to a real thing in the world like Facebook: Facebook itself has definite opinions about the plausibility of Google taking over its market, and they’re not shy about sharing them. The existence of Facebook’s counternarrative makes Google’s own tale less convincing (the same thing applied a few years later, when Facebook announced – through its “pivot to video” – that it would shortly take over YouTube’s market).

The downsides of making claims about real things (counterclaims from the people who currently control those things) evidently exceeded the upsides (a noncontroversial way of valuing real things), because shortly after Facebook’s pitch-invasion against YouTube, both Facebook and Google (and the rest of the tech sector) pivoted to making claims about imaginary technology.

This is our modern era: the era of cryptocurrency and NFTs, the metaverse and web3, and now, of course, AI and “superintelligence.” There’s no way to provide high-quality evidence about the potential value of these markets, sure. But what if that was be a feature, rather than a bug? If no one can say how large these markets will be, then who’s to say that they won’t be gigantic ?

Back in the dotcom days, when I had a startup, I asked a tech finance lawyer how he came up with the valuations for the companies he built term sheets for. He drew himself up and said with great seriousness, “Any number multiplied by a sufficiently large imaginary number is an even larger number.” In other words, figure out a way that the company might make a dollar, then multiply that by a very large number rep­resenting how many times the company will have the opportunity to make that dollar, and you’ll get a whopping number of dollars indeed.

It’s one thing to make everything about imaginary technology when you’re writing SF. The point of those imaginative exercises is to illumi­nate: To provoke reflection on our present moment, to inspire or warn about the future.

But spinning narratives about imaginary technology as investment advice is a very different matter. The point here is to obscure: to con­vince investors that a company with a 90% market share will somehow continue to grow, to stave off the day when Stein’s Law (“If something cannot go on forever, it will stop”) asserts itself.

All opinions expressed by commentators are solely their own and do not reflect the opinions of Locus

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