Mr Schoendorf, many people worry about a bubble in the tech sector. Do you see the danger as well?
Well, there is always a bubble. There’s never a time in economic history when there is not a danger of a bubble. The question that nobody knows the answer to is: When will it burst? Anybody who tells you that they think they do is wrong.
So your experience tells you that the spectacular rise of 150 Unicorns is not a problem?
Let me tell you a story: It’s been exactly 50 years that I came to Silicon Valley, which was not called that name at that time. I was a senior in college, had a degree in electrical engineering at Purdue University, and it was time to start job interviews. The Vietnam War was going on full swing and engineers were in great demand. There was a little $200-million-a-year-company in Palo Alto that was called Hewlett Packard who had a plan to go into a new business: computers. I flew out to Palo Alto. When I woke up the next morning, I walked out of my hotel room and there was an orange tree there. It was probably 60 degrees Fahrenheit in January, and I said to myself, “I’m going to Palo Alto”. HP became later the biggest computer company in the world.
And what does this story teach us?
My point is: I have seen booms and crashes, rise and fall. I have seen small companies becoming the biggest in the world. I‘ve been through five major cycles, I watched some and were in some for them. But it’s not the end of the world. In 1974 I read an article in a newspaper, that asked: “Is Silicon Valley the next Detroit?” We had the Oil Crisis at that time, Intel had just made an announcement that they would get out of the memory business – and everybody looked at the massive failure of this great company. But Intel wanted to invest in a new product they just invented called the integrated circuit and they wanted to put all their effort behind that. Now they are the largest semi-conductor company in the world. So, we will have an another downturn, another crisis. If I knew exactly when, I’d probably be smarter than I am. I don’t think it’s now.
„it does not matter“
But we have seen a correction in the last quarter of ’15.
Yes, we’ve seen a correction of 10-15%, nothing more and that’s okay. But there’s still very much opportunity and raw demand out there. Are all the 145 Unicorns out there gonna make it and be successful? No! But it does not matter. Look, five of the top ten most valuable companies in the world are VC backed IT companies. Many of them have only been in business this century – so what are you playing for? Big opportunity! 20 years ago Mark Zuckerberg was still in High School. Amazon had been online just one year. Apple was close to bankrupt. Now they dominate our world. So if we have 100 companies worth $1 billion and two of them make it to the Fortune 10 list in ten years and are worth $200 billion – it sounds like a pretty good deal to me.
A downturn would not change your mind on the long term perspective?
The long term does not change. If we’re sitting here in 2026 and we take a list of the Fortune 500 companies, 30% of them will be different than the list we have today. This decade will have the highest rated change and the drivers will be failure – failure to digitally transform themselves. Do you remember the Digital Equipment Corporation? In the 80ies they were the number two computer company and everybody thought they were going to overtake IBM. Well, they were bought by Compac in 1998. Today almost noone remembers both names. IBM is reasonably irrelevant in the computer business. Many IT companies are disrupted from the bottom, and the rate of disruption will increase.
So what is your advice to the people that worry?
You always have to look at the big picture. When I came to the Valley the IT Industry was Snow-white and the Seven Dwarfs. IBM was Snow-white and the seven dwarfs where mainframe company’s we don’t remember. They are all gone. We have a tradition of eating ourselves for the past decades. Now you see Media disappearing, it’s totally transformed and Netflix is the new winner. We saw Nokia disappear, Apple won and is now starting to attack core industries. When I am Davos I always look the badges of the people and read the companies name and think to myself: ‘safe’ or ‘not safe’.
And who is safe?
Almost noone is. Bankers, insurance, media, car industry or transportation, if you’re running a business today, you’re in a not safe park.