Because, Unicorns.

In the tech world, a ‘unicorn’ is a start-up company worth more than $1bn – and currently there are around 80 of them. As they develop, the competition from outside investors to get a piece of the pie is high. For the past decade, investing as much cash as possible into Apple, Amazon and a few others, along with venture capital funds, has been by far the best way to make money. Think about it: Airbnb ($2bn) is the largest room sharing site and owns no real estate; Uber ($50bn) is the largest taxi service and owns no transportation. Then there are start-ups like Instagram that had no revenue model, but that didn’t really matter. It’s the fact that their product was amazing and changed how people used technology to perceive their world.

But the problem is also coming from within the companies. The competition to keep employees is so high that the benefits are staggering. Facebook is paying for its staff to freeze their eggs so they can work now and breed later. Netflix, on the other hand, is offering unlimited parental leave. On top of this, companies need to find a cool place to house all their programmers, marketeers and engineers – and renting in Silicon Valley ain’t cheap.

“For thousands of years, guys like us have gotten the shit kicked out of us. But now, for the first time, we’re living in an era when we can be in charge. And build empires! We could be the Vikings of our day.” Richard, Silicon Valley

As venture capital money is thrown around to anyone with the next big idea, large companies such as Facebook and Apple are taking those small ideas and using their already over-flowing cash flow to throw into trying out the next big thing. The competition is brutal and while it drives down prices for the consumers, it makes life extremely hard for the start-up that has yet to see a profit.

The Telegraph sums it up nicely:

Costs for tech companies are spiralling as they scramble to find the programmers, engineers, designers and marketeers to create that cool app or sharing site, and then pay for the office space to house them all. Office rents in Silicon Valley and San Francisco are close on $100 a square foot, three times the national average for the US. The average salary for tech companies in that area is $195,000 and rising by 20pc a year. Getting into the technology business is not cheap anymore.

At the same time, competition in many sectors is becoming intense. With venture capital money being sprayed around, and with companies such as Apple sitting on more cash than most small nations, any popular idea immediately attracts a swarm of imitators. How many music streaming services do we need to compete with the fabulously successful Spotify, for example? Not as many as have been expensively launched, that is for sure. There are a whole host of taxi and room-sharing apps being set up – and that’s before Apple or Facebook decide to burn through a few billion launching their own. Brutal competition drives down prices and margins. That’s great for customers, but it makes life very hard for new companies that have yet to turn a profit.

True, over time, technology will always triumph. If you’d invested in Amazon even at the height of the dotcom madness of 1999 you’d still have made a lot of money. But there are going to be some big bumps along the way – and don’t be surprised if one of those is right ahead.

Damn those Unicorns.

[source:telegraph]