"Marc Andreessen" by Joi, CC BY 2.0
Marc Andreessen should need no introduction, but I’ll do one anyway. He helped code the first widely used graphical web browser, Mosaic, which as I see it makes him one of the inventors of the internet. He co-founded Netscape and various other companies. He also co-founded the venture capital firm Andreessen Horowitz (with Ben Horowitz), also known as A16Z, one of the country’s largest VC firms. Recently he has launched a media publication called Future, where he occasionally writes his thoughts.
Marc has been a sort of hero of mine ever since I was a teenager, when Netscape Navigator felt like it opened up the world. I came out to California in part to meet people like him. Now we know each other well, and he’s a subscriber to my blog! The thing I always like about talking to Marc is how he combines relentless optimism with the concrete knowledge to back up that optimism — both knowledge of specific details and a broad understanding of various schools of thought. Lots of people will tell you the future holds amazing possibilities; Marc will tell you exactly what those possibilities are, and why they’re possible.
In the interview that follows, I ask Marc ten questions about technology and the future — about automation, U.S. institutions, social media, competition from China, crypto, the future of the VC industry, and more.
N.S.: So, back in April of 2020 you wrote a very widely read essay called "It's Time to Build", basically arguing that the pandemic had exposed deep dysfunction in many of America's institutions and industries, and that we need to build new things to get ourselves out of this rut. I pretty strongly agree with that. My question is: What do you think are some of the top priorities for things we need to build, in both the private and public sectors? And who ought to be building them?
M.A.: The 15 months since I wrote It’s Time To Build have been dominated by three big events: the catastrophe of COVID, the systematic failure of virtually all public sector entities around the world (the formerly high functioning Asian nations are failing to vaccinate quickly), and the remarkable success of the private sector and in particular the American technology industry in helping us all get through this pandemic in far better collective shape that we had any right to expect. (See my new essay Technology Saves The World.)
So the good news is that, notwithstanding the apparent chronic collapse of state capacity virtually everywhere in our time, the private sector can and does deliver even under considerable duress, and even when much of our political system is devoted to stifling it with regulatory handcuffs and damaging it with misguided policies.
Now, God knows there is still a lot to build. For starters, most of our country, as well as most of the world, does not yet have the remarkably advanced standard of living that the elite readers of this interview have come to expect. Consider the three primary markers of the American Dream, or more generally middle class success -- housing, education, and health care. You have written at length on how all three of these success markers seem further and further out of reach for many regular people. I think -- and you would agree? -- that these three deficits are not only causing problems for how people live and how the economy functions, but are fouling our politics quite dramatically.
Housing, education, and health care are each ferociously complex, but what they have in common is skyrocketing prices in a world where technology is driving down prices of most other products and services. (See chart below.) I think we should build in the next decade new technologies, businesses, and industries that break these price curves -- and in fact reverse them, and make these three primary markers of the American dream easier and easier for regular people to attain. I’m proud that my venture firm has exciting startup investments in all three sectors, but we have a lot more work to do. I hope more people join us in this mission.
N.S.: One of the themes of my blog so far has been techno-optimism. I have to say that some of that attitude comes from talking to you over the years! Are you still optimistic about the near future of tech? And if so, which tech should we be most excited about?
M.A.: I am very optimistic about the future of tech, at least in the domains where software-driven innovation is allowed. It’s been a decade since I wrote my essay Software Eats The World, and the case I made in that essay is even more true today. Software continues to eat the world, and will for decades to come, and that’s a wonderful thing. Let me explain why.
First, a common criticism of software is that it’s not something that takes physical form in the real world. For example, software is not a house, or a school, or a hospital. This is of course true on the surface, but it misses a key point.
Software is a lever on the real world.
Someone writes code, and all of a sudden riders and drivers coordinate a completely new kind of real-world transportation system, and we call it Lyft. Someone writes code, and all of a sudden homeowners and guests coordinate a completely new kind of real-world real estate system, and we call it AirBNB. Someone writes code, etc., and we have cars that drive themselves, and planes that fly themselves, and wristwatches that tell us if we’re healthy or ill.
Software is our modern alchemy. Isaac Newton spent much of his life trying and failing to transmute a base element -- lead -- into a valuable material -- gold. Software is alchemy that turns bytes into actions by and on atoms. It’s the closest thing we have to magic.
So instead of feeling like we are failing if we’re not building in atoms, we should lean as hard into software as we possibly can. Everywhere software touches the real world, the real world gets better, and less expensive, and more efficient, and more adaptable, and better for people. And this is especially true for the real world domains that have been least touched by software until now -- such as housing, education, and health care.
N.S.: Recently you've invested in at least two companies, Clubhouse and Substack, that are part of a new wave of social media. Discord might also be included in that wave. Why now? What was lacking in the "old social media" of Twitter, Facebook, Instagram and YouTube? How might the new networks improve on that?
M.A.: It’s not so much what is lacking in the incumbents. It’s more the importance of communication as the foundation of everything that people do, and how we open up new ways for people to communicate, collaborate, and coordinate. Like software, communication technology is something that people tend to pooh-pooh, or even scorn -- but, when you compare what any one of us can do alone, to what we can do when we are part of a group or a community or a company or a nation, there’s no question that communication forms the backbone of virtually all progress in the world. And so improving our ability to communicate is fundamental.
Clubhouse is the Athenian agora come to life, globally. I mean that seriously. Clubhouse is the first venue for people anywhere in the world to come together in groups to talk -- not metaphorically, but literally -- about any topic they can imagine. It’s so striking that in our primarily textual technological world, people are instantly enthusiastic about the opportunity to participate in oral culture online -- there is something timeless about talking in groups, whether it’s around a campfire 5,000 years ago or on an app today.
Substack is the business model for intellectual creativity that’s been missing on the Internet for 30 years. I’m so excited about this. Substack isn’t a new form of communication; in fact it’s the original form of Internet communication -- the written essay, the IETF Request for Comments, the newsgroup posting, the group email, the blog post. But until now you could never get paid for writing online, and now all of a sudden you can. I think it’s hard to imagine how transformational this is going to be.
Substack is causing enormous amounts of new quality writing to come into existence that would never have existed otherwise -- raising the level of idea formation and discourse in a world that badly needs it. So much of legacy media, due to the technological limitations of distribution technologies like newspapers and television, makes you stupid. Substack is the profit engine for the stuff that makes you smart.
N.S.: Your most famous quote is probably "Software is eating the world". How is that likely to manifest over the next decade or so? Will A.I. automate whole business models out of existence? Will old-line companies that try to patch software into their existing operations and business models get outcompeted by companies that start out as software companies and then branch into traditional markets, as my friend Roy Bahat believes? Or something else?
M.A.: My “software eats the world” thesis plays out in business in three stages:
- A product is transformed from non-software to (entirely or mainly) software. Music compact discs become MP3’s and then streams. An alarm clock goes from a physical device on your bedside table to an app on your phone. A car goes from bent metal and glass, to software wrapped in bent metal and glass.
- The producers of these products are transformed from manufacturing or media or financial services companies to (entirely or mainly) software companies. Their core capability becomes creating and running software. This is, of course, a very different discipline and culture from what they used to do.
- As software redefines the product, and assuming a competitive market not protected by a monopoly position or regulatory capture, the nature of competition in the industry changes until the best software wins, which means the best software company wins. The best software company may be an incumbent or a startup, whoever makes the best software.
My partner Alex Rampell says that competition between an incumbent and a software-driven startup is “a race, where the startup is trying to get distribution before the incumbent gets innovation”. The incumbent starts with a giant advantage, which is the existing customer base, the existing brand. But the software startup also starts with a giant advantage, which is a culture built to create software from the start, with no need to adapt an older culture designed to bend metal, shuffle paper, or answer phones.
As time passes, I am increasingly skeptical that most incumbents can adapt. The culture shift is just too hard. Great software people tend to not want to work at an incumbent where the culture is not optimized to them, where they are not in charge. It is proving easier in many cases to just start a new company than try to retrofit an incumbent. I used to think time would ameliorate this, as the world adapts to software, but the pattern seems to be intensifying. A good test for how seriously an incumbent is taking software is the percent of the top 100 executives and managers with computer science degrees. For a typical tech startup, the answer might be 50-70%. For a typical incumbent, the answer may be more like 5-7%. This is a huge gap in software knowledge and skill, and you see it play out every day across many industries.
As for Artificial Intelligence, as an engineer myself, it’s hard to be quite as romantic as a lot of observers tend to be. AI -- or, to use the more prosaic term, Machine Learning -- is an incredibly powerful technology, and the last decade has seen explosive AI/ML innovation that’s increasingly showing up in the real world. But it’s still just software, math, numbers; the machines aren’t becoming self aware, Skynet is not here, computers still do exactly what we tell them. So AI/ML continues to be a tool used by people, more than a replacement for people.
A famous story from the birth of computer science has Alan Turing, father of the computer, lunching with Claude Shannon, father of information theory, in the AT&T executive dining room near Bell Labs in the early 1940s. Turing and Shannon engage in an increasingly heated discussion about the future of thinking machines when Turing stands up, pushes his chair back, and says loudly, “No, I’m not interested in developing a powerful brain! All I’m after is a mediocre brain, something like the President of AT&T.'"
I think about AI like that -- although, for the record, the President of AT&T is a friend of mine, and he’s actually quite bright. I suspect “Artificial Intelligence” is the wrong framing for the technology; Doug Engelbart was probably more correct with what he called “Augmentation”, so think “Augmented Intelligence”. Augmented Intelligence makes machines better thought partners for people. This concept is clearer for considering both the technological and economic consequences. What we should see in a world of rapidly proliferating Augmented Intelligence is the opposite of a jobless dystopia -- productivity growth, economic growth, new job growth, and wage growth.
And I think this is exactly what we are seeing. It’s worth remembering that before COVID, only 18 months ago, we were experiencing the best economy in 70 years -- rising wages, low and falling unemployment, and essentially zero inflation. The economy was even improving more for lower skill and lower income people than it was for people like us, despite computers everywhere. Unemployment among the most disadvantaged in our society -- people without even high school degrees -- was as low as it’s ever been. This is far from an automation-driven dystopia; in fact, it’s the payoff from three centuries of increasing mechanization and computerization. As the economy recovers from COVID, I expect these positive trends to continue.
N.S.: Speaking of software eating the world, I've been writing that the true productive potential of the internet is only getting started, and that the pandemic will end up having pushed us to develop more distributed systems of production -- much like when electricity allowed factories to switch from a single drive train to multiple independently powered workstations a century ago. Do you think that's basically right? Do you see more work going remote, and/or business operations becoming more fragmented between different companies?
M.A.: I think that’s right.
First, COVID is the ultimate cover for restructuring -- what my friend and former CFO Peter Currie used to call “shake and bake”. It’s an opportunity for every CEO to do all the things he/she may have wanted to do in the past to increase efficiency and effectiveness -- from fundamental headcount resizing and reorganization, to changing geographic footprint, to exiting stale lines of business -- but couldn’t because they would cause too much disruption. The disruption is happening anyway, so you might as well do everything you’ve always wanted to do now.
Second, it’s hard to overstate the positive shock that remote work works. Remote work isn’t perfect, there are problems, but virtually every CEO I’ve talked to over the last year marvels at how well it works. And remote work worked under the extreme duress of a pandemic, with all of the human impact of lockdowns and children unable to go to school and people being unable to see their friends and extended families. It will work even better out of COVID. Companies of all shapes, sizes, and descriptions are retooling their assumptions on geographic footprint, where jobs are located, where employees are located, how offices are configured, and if there should be offices at all.
Combining these factors, it’s possible that we’ll see a huge surge in productivity growth over the next 5 years. This productivity growth is, in my view, the key to a strong “roaring 20’s” thesis, that we are going to see an amazing economic boom in the US over the next several years, even on top of the incredible boom of 2009-2020. I don’t think that’s a certainty, but I think it’s possible -- even likely.
Third, this isn’t just a dramatic change in how companies operate, it’s also an equally dramatic change in how individuals live and work. For anyone who does his/her job mainly with other people and/or through a screen -- an increasing percent of the workforce every year, and most people with college degrees -- this is an opportunity to rethink everything from what career to pursue, to what employer to work for, to where to live, to how to live. We are already seeing a huge surge in job turnover at big tech companies, driven by the employees as much as the employers, and I expect this to continue as people reconfigure their lives for the new choices of the post-COVID world. The biggest change is the uncoupling of where you live from where you work, but even beyond that, I think a lot of people may choose to live very different lives coming out of this -- forming new kinds of intentional communities, for example.
And then there’s the fact that most employers in the past couldn’t hire most potential workers due to geographic constraints, but now they can -- talent may not actually be distributed equally, but it’s certainly distributed far more than companies and workers have been able to take advantage of -- and all of a sudden, the opportunity to far more effectively match employer and worker all over the world exists.
Add this all up, and you have a potentially massive unlock of latent economic growth potential in the US and around the world. Many more people fitted into better jobs, more spending power creating more demand, more new industry and business creation, more job growth and wage growth…I don’t want to predict only blue skies ahead, but the positive scenarios are probably underrated.
N.S.: You've been more and more interested in the crypto space in recent years. What are some cool things about crypto that aren't emphasized enough in popular discussions?
M.A.: Crypto is one of those topics that calls to mind the parable of the blind men and the elephant -- there are so many aspects of how it works and what it means that you can interpret it many different ways and seize on one part or another to make whatever point you want. A lot of people, for example, seize on the money part, and either glorify it as a new kind of monetary system that liberates mankind from the nation state, or crucify it as a danger to economic stability and the ability for governments to tax. All of these are interesting arguments, but I think they all miss a more fundamental point, which is that crypto represents an architectural shift in how technology works and therefore how the world works.
That architectural shift is called distributed consensus -- the ability for many untrusted participants in a network to establish consistency and trust. This is something the Internet has never had, but now it does, and I think it will take 30 years to work through all of the things we can do as a result. Money is the easiest application of this idea, but think more broadly -- we can now, in theory, build Internet native contracts, loans, insurance, title to real world assets, unique digital goods (known as non-fungible tokens or NFTs), online corporate structures (such as digital autonomous organizations or DAOs), and on and on.
Consider also what this means for incentives. Up until now, collaborative human effort online either took the form of a literal adoption of real-world corporate norms -- a company with a web site -- or an open source project like Linux that had no money directly attached. With crypto, you can now create thousands of new kinds of incentive systems for collaborative work online, since participants in a crypto project can get paid directly without a real-world company even needing to exist. As great as open source software development has been, far more people are willing to do far more things for money than for free, and all of a sudden all those things become possible and even easy to do. Again, it will take 30 years to work through the consequences of this, but I don’t think it’s crazy that this could be a civilizational shift in how people work and get paid.
Finally, Peter Thiel has made the characteristically sweeping observation that AI is in some sense a left wing idea -- centralized machines making top-down decisions -- but crypto is a right wing idea -- many distributed agents, humans and bots, making bottom-up decisions. I think there’s something to that. Historically the tech industry has been dominated by left wing politics, just like any creative field, which is why you see today’s big tech companies so intertwined with the Democratic Party. Crypto potentially represents the creation of a whole new category of technology, quite literally right wing tech that is far more aggressively decentralized and far more comfortable with entrepreneurialism and free voluntary exchange. If you believe, as I do, that the world needs far more technology, this is a very powerful idea, a step function increase in what the technology world can do.
N.S.: A16Z has become famous for innovating in the space of venture capital itself, offering more extensive services to portfolio companies and becoming a registered investment advisor. What are some other changes you see VC firms exploring in the years to come? Might some come to resemble private equity firms, or banks? Are there any totally new business models on the horizon?
M.A.: There’s something very old about what venture capital is -- Tyler Cowen uses the term “project evaluation”, the process of sorting through many possible configurations of people and ideas and then picking a few to back with money and effort to try to create something new and important in the world. In venture capital, this idea traces back to the whaling industry of centuries past, where independent financiers would fund captains and ships to hunt whales -- legend has it this is the origin of the term “carried interest”, which originally meant the share of the whale carried by the ship and kept by the captain and crew. The same “project evaluation” pattern has played out repeatedly for centuries, for many kinds of large-scale, risky projects, from colonial settlements like the Plymouth colony, to music/film/television projects, to the world’s largest private equity transactions.
But of course there’s also something very new about what venture capital is -- we fund the most cutting edge ideas and projects in the world, brand new conceptions of what technology makes possible. The founders we fund routinely break rules and create new models that people think are impossible until they happen. This includes many of the leading edge crypto ideas I discussed above, many of which assume a very different form of industrial organization than a classic joint stock company.
So we sit at the vortex of this combination of the very old and the very new. It’s certainly possible that venture capital itself gets pulled into this vortex and comes out the other side radically transformed, and in fact this is what some of the smartest crypto experts are predicting. And yet…there is, at least so far, no substitute to someone doing the work of sorting and filtering all of the potential projects and making big and risky bets. Is this Robert Michels’ Iron Law of Oligarchy for selecting, organizing, and funding risky ventures, regardless of what kind of technology is involved? I’m not sure, but maybe.
Closer to home, an increasing focus of mine is whether we can break what I call the “little boy/big boy” pattern of how technology projects are funded and scaled. The “little boy” is the Silicon Valley ecosystem that gets new ventures off the ground; the “big boy” is New York and the Wall Street world of stock markets and investment banks and hedge funds that tends to carry companies to scale during and after IPO. Maybe it’s time for Silicon Valley -- as a geographic location, as a network of people, as a state of mind -- to take on a bigger role in the economy, scaling our companies all the way to huge without ever handing them off to professionals on the other literal and metaphorical coast who may not understand and value them the way we do. We’ll see...
N.S.: I still remember reading an article about you in 1996, on Netscape Navigator on my dad's PC. You had hair! Anyway, you kind of became an icon of the 90s, which were a very formative time for both me and for the internet. So I wanted to ask: In what ways did the dreams of the 1990s techies come true? And in what ways were they dashed on the rocks of reality? When we think back on the 90s, how should we remember that era, and what ideas from that era should we hold on to?
M.A.: It worked! The dreams came true; it all worked. And now we’re the dog that caught the bus. What do we do with this damned bus?
Think about what we’ve done. Five billion people are now carrying networked supercomputers in their pockets. Anyone in the world can create a web site and publish anything they want, can communicate with anyone or everyone, can access virtually any information that has ever existed. People live, work, learn, and love almost entirely online. Virtually all of the constituent components of the vision of the 1990’s have come literally true.
And yet, and yet. As Edwin Land, the founder of Polaroid, once said, “I didn’t say you’re all going to be happy. You’ll be unhappy – but in new, exciting and important ways.”
Why isn’t everyone happy? I think it’s that the technology industry went from building tools -- operating systems, and databases, and routers, and word processors, and browsers -- that other people picked up and used, to becoming the center of virtually every major societal and political debate and dispute on the planet, in almost a single step.
One way to think about it is that we went from being pirates to being the Navy. People may love pirates when they’re young and small and scrappy, but nobody likes a Navy that acts like a pirate. And today’s technology industry can come across a lot like a Navy that acts like a pirate.
On the other hand, a Navy without pirates isn’t necessarily great either -- a suppressive force that prevents new ideas and new activities from forming, a global orthodoxy and set of rules that lead to the death of creativity -- which creates the opportunity, and the need, for a new generation of pirates.
Machiavelli in his Discourses stresses the need for a state to go back to the well, to its original founding ideas, to find renewal in later and darker times. I think this same principle applies to companies and industries. I think we should make a practice of revisiting the founding ideas of the technology industry -- certainly the 1990s of John Perry Barlow’s A Declaration of the Independence of Cyberspace and Tim May’s Cyphernomicon -- but also the 1950’s and 1960’s of Doug Engelbart and Ted Nelson, the 1920’s of David Sarnoff and Philo Farnsworth, the 1890’s of Thomas Edison and Nikola Tesla, even the 1500’s of Leonardo da Vinci. I think we should view the unrealized -- or imperfectly realized -- ideas from all those eras as not lost but not yet found.
N.S.: Let's talk a bit about competition between the U.S. and China. How worried should we be that China is -- at least, according to the World Bank's numbers -- far ahead of us in the volume of high-tech exports? Should we worry about Chinese dominance of networking tech or drones, or their big pushes in the semiconductor industry and A.I.? And if we should be worried, how should America respond?
M.A.: This is a classic on the one hand, on the other hand puzzle, linked to our propensity to want to punish ourselves to make ourselves feel good. Here's what I mean: On the one hand, China developing into a powerhouse of technological innovation would be good for the world, because new technologies don't tend to stay hoarded; they are ideas at heart, and ideas tend to proliferate and become adopted widely. Economist William Nordhaus long ago showed that 98% of the economic surplus created by a new technology is captured not by its inventor but by the broader world; I think this obviously holds true not just at the level of an inventor or a company but also of a country. Ideas created in America have made the whole world immeasurably richer, and I think the same will happen due to ideas created in China.
On the other hand, China has a strategic agenda to achieve economic, military, and political hegemony by dominating dozens of critical technology sectors -- this isn't a secret, or a conspiracy theory; they say it out loud. Recently the tip of their spear has been networking, in the form of their national champion Huawei, but they clearly plan to apply the same playbook into artificial intelligence, drones, self-driving cars, biotech, quantum computing, digital money, and etc. Many countries need to consider very carefully whether they want to run on China Inc.'s technology stack with all of the downstream control implications. Do you really want China to be able to turn off your money?
In the meantime, the West's technology champion, the United States, has decided to self-flagellate -- both political parties and their elected representatives are busily savaging the US technology industry every way they possibly can. Our public sector hates our private sector and wants to destroy it, while China's public sector works hand in glove with its private sector, because of course it does, it owns its private sector. At some point, we may wish to consider whether we should stop machine-gunning ourselves in the foot at the start of this quite important marathon.
N.S.: If you could give some advice -- career advice, or otherwise -- to a smart 23-year-old American today, what would it be?
M.A.: Don’t follow your passion. Seriously. Don’t follow your passion. Your passion is likely more dumb and useless than anything else. Your passion should be your hobby, not your work. Do it in your spare time.
Instead, at work, seek to contribute. Find the hottest, most vibrant part of the economy you can and figure out how you can contribute best and most. Make yourself of value to the people around you, to your customers and coworkers, and try to increase that value every day.
It can sometimes feel that all the exciting things have already happened, that the frontier is closed, that we’re at the end of technological history and there’s nothing left to do but maintain what already exists. This is just a failure of imagination. In fact, the opposite is true. We’re surrounding by rotting incumbents that will all need to be replaced by new technologies. Let’s get on it.