Don't Be Fooled by the Tech Downturn

Venture capitalist Marc Andreessen warns that big companies think they can now relax but should double down on tech-driven innovation efforts. 

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I'll be quick this week. I'm in Pittsburgh visiting my 92-year-old mother, who finally gave up tennis a few years ago but still takes no prisoners in her duplicate bridge games, and we have puzzles to do. 

But I wanted to pass along a meaty interview that McKinsey did recently with prominent venture capitalist Marc Andreessen. He offers a timely warning for insurers that might be tempted to see the tumbling of tech stocks, including those of insurtechs, as an excuse to slow innovation efforts.

Andreessen says: "The minute tech stocks get hit, a lot of big companies basically say, 'Oh, thank God, we don’t have to take this stuff as seriously.' This happened in a huge way after 2000. One of the reasons why Amazon took off is because all of the traditional retailers, after 2000, said, 'Oh, thank God, we don’t have to worry about this e-commerce thing anymore.' And they just left the field. Borders famously outsourced their online business to Amazon, which, in retrospect, was maybe not the best idea."

His advice: Double down while your competition is relaxing. 

In the interview with McKinsey, Andreessen also makes an intriguing argument for turning the normal innovation process upside-down. Rather than hiring technologists to assist with innovation, he argues, companies should put the technologists in charge of an opportunity and let them run with it.

He makes a more extreme form of that argument that no big insurance company will buy: that the best technologist should run the entire company. He cites Tesla as a success story in an industry where GM, Ford and others are run by traditional managers.

But I think companies should at least experiment with the more limited form of Andreessen's argument. I've written before that technology resources need to move out of the IT department and into the various business operations that they serve, and it makes sense to then see how much technology can drive strategy in those operations. Corporations have increasingly been deploying digital strategies for 25 years now, and it only makes sense that departments, operating sort as fractals of the parent, would be able to see how far they can push the envelope now that IT resources have matured to the point that they don't have to be so centralized. 

Andreessen also lays out three areas that he describes as the ABCs of innovation opportunities. I'm fully on board with the A, artificial intelligence, and the B, biotech -- we've published at length on all the opportunities being created by AI, and genomics is actually improving much faster even than Moore's law would suggest. Those gains will have massive impacts on healthcare and life expectancy and, thus, on insurers. I'm only partly on board with the C, crypto, because, while I see blockchain solving lots of real-world problems, I've never quite figured out what cryptocurrency is supposed to do for me. Yes, fees are still much too high on money that flows through the international financial system, but I don't see how crypto is going to solve that problem, especially when crypto mining already consumes more electricity than all of Argentina. 

Andreessen argues grandly that crypto and Web3 are "building out the other half of the internet" and notes the huge amount of engineering talent that is flowing into the field, but I'm with the McKinsey editor who responds: "A lot of really, really smart people were moving into web technologies around 1998 and 1999. And a lot of those technologies wound up going nowhere."

You can decide for yourself who's right; you've heard my side, and he goes on at length about his.

If nothing else, Andreessen is an original thinker, going back to his days developing the first commercial internet browser in the mid-1990s, extending through his famous essay a decade ago about how software is eating the world and continuing with his efforts to position his VC firm, Andreessen Horowitz, as the marketing engine for their portfolio, moving beyond the traditional role as just financial backer. (I identified Andreessen as clearly brilliant early on, when an interview with him in perhaps 1996 included a sidebar with his five favorite books of all time and listed my look at IBM's travails, "Big Blues," as one of them. I came quite close to convincing the executive team to let me do a fly-on-the-wall book on Netscape, the company built around Andreessen's browser, before the CEO decided he didn't have the time.)

And I'll acknowledge that our relative net worths, rounded to the nearest hundred million, are: Andreessen, $1.6 billion; me, $0.



P.S. Fun fact: Despite his massive net worth, Andreessen didn't amass the biggest fortune in his family. And the person would bested him did so in the most traditional of ways: through real estate development. That person was his father-in-law, John Arrillaga, who went to Stanford in the 1950s and saw the potential for all the farmland in the area. He bought as much as he could as fast as he could and became one of the biggest landlords in Silicon Valley. He had a fortune listed at $2.5 billion when he died early this year, even after having given away hundreds of millions of dollars, notably to his alma mater.