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Tech’s Money Woes: Beginning of the End for Web2?

After two decades of dominating and reshaping our lives, “Big Tech” is finally looking weakened.

According to Crunchbase, more than 46,000 staffers at U.S.-based tech companies lost their jobs in the first three weeks of 2023 alone, following a layoff tally of 107,000 in 2022. This week, Microsoft gave a gloomy forecast of 2023 enterprise demand for its Azure cloud services, which coincidentally suffered a major outage at the same time, while the Department of Justice (DOJ) served Google with a lawsuit that could end its monopolistic advertising operation. Add to that the chaos at Twitter since Tesla owner Elon Musk took over and Meta’s dismal stock performance as its earnings plunged in 2022, and we find broad-based malaise across the industry that brought us Web2.

The question is whether this is just a cyclical phenomenon or whether it’s a secular shift, the end of an era for the titans of Web2. And if it’s the latter, what comes next?

Those who want to see a Web3 economy in which centralized internet platforms have less influence over our lives and where people and businesses have greater control over their data and content are naturally hopeful Big Tech’s woes are the precursor to a brighter future. But it could just as well be that this moment of distress passes and we either return to the status quo or a new architecture arises around artificial intelligence (AI) and metaverse technologies that’s overrun by the very same centralized firms dominant today.

Cyclical or secular?

The cyclical case is easy to make: The lax monetary environment before 2022 drove these firms to invest massively in new, pre-mainstream technologies such as AI and virtual reality. Now, as rising interest rates force their clients to reduce spending on these companies' cash-cow product offerings, such as online advertising and data storage, they’re forced to curb their outlays.

Seen that way, this is just a downsizing exercise, one that will put Big Tech in a healthier position to capitalize on the advance of the new technologies once they gain mainstream application.

But it’s noteworthy that cyclical financial weakness coincides with declining public trust in the tech industry, a trend that could portend a more lasting, secular decline in its prospects. After all, public opinion drives political response and, arguably, Big Tech’s greatest vulnerability lies in Washington, D.C.

In April, the annual Edelman Trust Barometer showed that in aggregate, trust in technology industries remains higher than others worldwide (including lowly thought-of media businesses, sadly.) But the key takeaway was that in the U.S., whose policy making apparatus has the greatest power to determine the industry’s fortunes, trust in tech hit an all-time low.

This isn’t surprising, given the negative news flow these past few years. People now have a clear window into Twitter’s intractable problems around hate speech moderation, bots, disinformation and the debate over identity and reputation – all unresolved, if not elevated, by Musk’s leadership. They’ve also had the curtain pulled back on Meta (formerly Facebook), whose well-documented abuses of people’s data inspired a rare case of bipartisan agreement in Congress.

Waning confidence has coincided with an escalation of regulatory action against the internet platforms, first in Europe, now in the U.S., with this week’s lawsuit against Google potentially the biggest threat of all to the Web2 titans’ economic model.

The antitrust suit, which accuses Google of having “corrupted legitimate competition in the ad tech industry,” could directly upend the central mechanism by which these firms turn their near-omniscient view of a billion-plus users’ data into dollars. For all the mounting criticism of this “surveillance capitalism” model, the platforms entrenched it, even deepened it, because it routinely delivered profits to shareholders. End all that and the ad- and data-driven Web2 economic system is itself put into question.

Frying pan to fire?

OK. But if this is the beginning of the end for Web2, what comes next?

Well, by definition, the future is Web3. But that says nothing other than to offer a word to describe the unknown world after Web2. Who is in control of that future system, that’s the question.

The idea that we will all be in control, because we generate the all-important data and the content that drives the internet economy, is appealing. I certainly support all efforts to achieve that, be they based on blockchains and non-fungible tokens (NFT) or something else. But there’s no guarantee such a utopia will arise.

In fact, without deliberate efforts by all stakeholders to establish fair frameworks around decentralized identity, credentialing, encryption and data storage, the “platform-less” Web3 world may still be controlled by giant data-hogging entities. And it could even be the same ones.

Consider AI, whose importance to the future digital economy is underscored by the recent advance of ChatGPT. As I wrote in December, many see this technology ending internet search as we know it. In a ChatGPT world, the idea goes, we’ll no longer ask a search engine to provide a list of websites with information related to what we’re interested in; we’ll simply query an AI chatbot and the answers will come back as text or audio. No need for Google, right?

Well, maybe we’ll no longer use Google search, but what about Google AI? The company’s parent, Alphabet, is investing enormous sums to develop AI systems – it was referenced multiple times in CEO Sundar Pichai’s note to staff when he announced 12,000 layoffs last week.

Maybe the victor won’t be Google but Microsoft, in partnership with the Elon Musk-founded OpenAI. The Seattle-based software provider just invested $10 billion in the company that developed the ChatGPT technology, on top of the $3 billion it had already dedicated to the partnership.

Or maybe these corporations lose and we end up with a nominally decentralized entity dominating everything, such as Ethereum, the leading platform for NFTs and decentralized finance. Do we want that?

At CoinDesk’s I.D.E.A.S. conference last fall, Osmosis Labs co-founder Sunny Aggarwal talked of Ethereum as an “empire” that wants developers of software and new ideas to abide by its standards and rules. Independent app-specific chains, linked together by the Cosmos protocol on which Osmosis builds, he said, is the way to a truly democratic, open internet.

Whether the Cosmos vision to interoperability is the solution, or Polkadot founder Gavin Wood’s, or whether the answer lies in the Decentralized Social Network Protocol (DSNP) underpinning entrepreneur Frank McCourt’s Project Liberty mission to fix the internet is perhaps less important than the fact that the shape of that future internet is up to us.

If we want a decentralized internet and don’t want our lives manipulated by AI and by data-mining, centrally controlled public and private entities, we’re going to have to band together and insist on it. We need laws, standards bodies and multi-stakeholder governance systems in place. There’s a lot at stake.

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