Tech Epochs and the App Store Trap
Courtesy of Ben Thompson, Stratechery
(Full article published at Stratechery, here)
Matthew Brooker, writing for Bloomberg Opinion, is worried about Xi Jinping leading China into a trap:
The middle-income trap describes how economies tend to stall and stagnate at a certain level of development, once wages have risen and productivity growth becomes harder. Relatively few make the transition to high-income status. The history of those that have, such as South Korea and Taiwan, points to a need for the state’s role to retreat as markets advance. Ad hoc interventions by governments may work at more basic levels of development. At higher income levels, economies become too complex for command-and-control management by individuals. Systems are increasingly what matters. Rules that are transparent, predictable and fairly applied enable market forces to take over the job of directing economic activity, raising efficiency and allowing innovation to flourish.
This inevitably implies some ceding of power by the rulers. It also potentially implies political change. South Korea and Taiwan both transitioned from authoritarian to democratic political systems as they became richer. The largest high-income economies are almost all democracies. Xi, a believer in the historic mission and preordained victory of the Communist Party, is far from receptive to such a message. The party has embraced markets, but from a position of superiority. Like laws, they are there to be used, when useful; the party remains supreme, above all.
I have spent a fair bit of time over the last few months discussing China’s recent crackdown on its tech industry; to me one of the most interesting questions is whether China’s renewed quest to catch up technologically, particularly in the area of semiconductors, might suffer from the country’s recent crackdown. Dan Wang argued in Foreign Affairs (and previously, in a Stratechery Daily Update interview) that U.S. sanctions were exactly the sort of spur the country needed:
China’s private entrepreneurial firms have driven the bulk of the country’s technological success, even though their interests have not always aligned with the state’s goal of strengthening domestic technology. Beijing has, for example, recently begun cracking down on certain consumer Internet companies and online education firms, in part to redirect the country’s efforts towards other strategic technologies such as computer chips. This has meant that China’s most impressive technological achievements—building state-of-the-art capabilities in renewable energy, consumer Internet services, electronics, and industrial equipment—have as often been driven in spite of state interference as they have because of it.
Then came U.S. President Donald Trump. By sanctioning entrepreneurial Chinese companies, he forced them to stop relying on U.S. technologies such as semiconductors. Now, most of them are trying to source domestic alternatives or design the necessary technologies themselves. In other words, Trump’s gambit accomplished what the Chinese government never could: aligning private companies’ incentives with the state’s goal of economic self-sufficiency.
What happens, though, if the priorities of those private companies shifts from winning in the market to satisfying the Party? Is there a cost to losing world-class founders and entrepreneurs like ByteDance CEO Zhang Yiming and Pinduoduo CEO Colin Huang? It is one thing to align private incentives with state incentives; it is an open question if doing so by removing the drive for dominance and outsized profits ends up being a case of one step forwards, and two steps back.
Tech Epochs
In 2014 I described the The Three Epochs of Consumer Tech to that point; to summarize my argument (which, as is always the case seven years on, isn’t perfect):
- The PC epoch had Windows as its operating system, productivity software as its killer app, and email was the dominant communications medium.
- The Internet epoch had the browser as its operating system, search as its killer app, and social networking, particularly Facebook, was the dominant communications medium.
- The mobile epoch had iOS and Android as its operating systems, the sharing economy as its killer app, and messaging was the dominant communications medium.
At the time I posited that the next epoch was unclear; I listed wearables, Bitcoin, and mobile applications like Uber as possibilities, although settled on messaging as being the most likely to be the fourth epoch.
Then, in 2020, I argued we had reached The End of the Beginning:
There may not be a significant paradigm shift on the horizon, nor the associated generational change that goes with it. And, to the extent there are evolutions, it really does seem like the incumbents have insurmountable advantages: the hyperscalers in the cloud are best placed to handle the torrent of data from the Internet of Things, while new I/O devices like augmented reality, wearables, or voice are natural extensions of the phone.
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