A16Z founder Marc Andreessen: The VC Path of a Technological Optimist

This article is sourced from noahpinion, authored by Noah Smith, and compiled by Crypto Geek.

Marc helped write the first widely used graphical interface browser, Mosaic, which made him one of the inventors of the internet. Marc co-founded Netscape and several other companies. Later, he also co-founded the venture capital firm Andreessen Horowitz (with Ben Horowitz), also known as A16Z, which is one of the largest venture capital firms in the United States. Recently, he launched a media publication called Future, where he occasionally writes down his thoughts.

Since I was a teenager, Marc has been a hero of mine, as Netscape Navigator made me feel like I had opened the door to the world. Part of the reason I moved to California was to meet people like him. Now I know Marc well; he is a subscriber to my blog! We often chat because he combines resilient optimism with concrete knowledge to support that optimism—having both an understanding of specific details and a broad understanding of various schools of thought. Many people will tell you that the future is full of infinite possibilities; Marc will accurately tell you what those possibilities are and why they will become possible.

Recently, I sent Marc a list of questions covering ten topics about technology and the future—ranging from automation, American institutions, social media, competition from China, cryptocurrency, to the future of the venture capital industry, and more.

Here are his answers, which I hope can provide you with some new insights.

Q: So, back in April 2020, you wrote a widely read article titled "It's Time to Build," essentially arguing that the pandemic has exposed deep dysfunctions in many American institutions and industries, and that we need to build new things to break free from this status quo. I completely agree with this. My question is: What do you think are some of the top priorities for what we need to build in the private and public sectors? Who should build them?

A: In the 15 months since I wrote "It's Time to Build," three major events have dominated: the disaster of COVID, the systemic failures of almost all public sector entities around the world (with previously high-functioning Asian countries failing to vaccinate quickly), and the private sector, particularly the American tech industry, achieving significant success in helping all of us navigate this pandemic in better forms, which is taken for granted.

So the good news is that, despite the evident long-term collapse of national capacity almost everywhere in our time, even under considerable pressure, most of our political systems are committed to stifling it with regulatory handcuffs and undermining it with wrong policies. The private sector has been able to and indeed has done so.

Now, it is well known that there is still much to build. First, most of our country and much of the world have not yet achieved the significantly improved living standards that the elite readers of this interview would expect. Consider the three main markers of the American Dream, or more generally, middle-class success—housing, education, and healthcare. You have detailed how these three markers of success seem increasingly out of reach for many ordinary people. I think—you would agree?—that these three deficiencies not only create problems for people's lifestyles and the way the economy operates, but also greatly undermine our politics.

Housing, education, and healthcare are all very complex, but they share the commonality of skyrocketing prices in a world where technology is driving down the prices of most other goods and services (see the chart below). I believe we should build new technologies, businesses, and industries in the next decade that break these price curves—actually reversing them—and make these three main markers of the American Dream increasingly attainable for ordinary people. I am proud that my venture capital firm has exciting investments in all three areas, but we have a lot of work to do. I hope more people will join our mission.

Q: So far, one of the themes of my blog has been technological optimism. I have to say, some of that attitude comes from years of conversations with you! Are you still optimistic about the near future of technology? If so, what technology should we be most excited about?

A: I am very optimistic about the future of technology, at least in areas that allow for software-driven innovation. I wrote the article "Software Eats The World" ten years ago, and the case I made in that article is even more real today. Software will continue to eat the world and will do so for decades, and that is a wonderful thing. Let me explain why.

First, a common criticism of software is that it is not something that takes physical form in the real world. For example, software is not houses, schools, or hospitals. This is certainly true on the surface, but it overlooks a key point.

Software is a lever for the real world. Someone writes code, and suddenly passengers and drivers coordinate a brand new real-world transportation system we call Lyft. Someone writes code, and suddenly homeowners and guests coordinate a brand new real-world real estate system we call AirBNB. Someone writes code, and so on, and we have self-driving cars, flying drones, and watches that tell us when we are healthy or sick.

Software is our modern alchemy. Isaac Newton spent most of his life trying to turn base elements—lead—into something valuable—gold, but he failed. Software is a kind of alchemy that transforms bytes into actions through atoms and bits. This is the closest we get to magic.

So if we are not building in atoms, rather than feeling like we have failed, we should strive to use software as much as possible. Wherever software touches the real world, the real world becomes better, cheaper, more efficient, more adaptable, and better for people. This is especially true for those who are touched by software in the real world, at least so far—as in housing, education, and healthcare.

Q: Recently, you have invested in at least two companies, Clubhouse and Substack, which are part of a new wave of social media. Discord may also be included in that wave. Why now? What do "old social media" like Twitter, Facebook, Instagram, and YouTube lack? How will the new networks improve?

A: What the incumbents lack is not so much. More importantly, it is the importance of communication as the foundation of everything 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 scoff at or even disdain—but when you compare what any of us can do alone to what we can do as part of a group or community or a company or a nation, there is no doubt that communication constitutes the backbone of almost all progress in the world. Therefore, improving our communication capabilities is crucial.

Clubhouse is the Athenian marketplace that has come alive globally. I mean it seriously. Clubhouse is the first place where people from anywhere in the world can gather to talk about anything they can think of—not metaphorically, but literally. It is astonishing that in our text-dominated world, people are immediately enthusiastic about the opportunity to engage in an oral culture online—whether around a campfire 5,000 years ago or today on an app, group conversations have an eternal significance.

Substack is a business model for intellectual creativity that has been missing from the internet for 30 years. I am very excited about this. Substack is not a new form of communication. In fact, it is the original form of internet communication—written articles, IETF requests for comments, newsgroup posts, group emails, blog posts. But until now, you could never get paid for writing online, and now suddenly you can. I think it is hard to imagine how transformative this will be.

Substack is leading to the emergence of a large amount of new high-quality writing that would otherwise never exist—raising the level of thought formation and discourse in a world that desperately needs it. Many traditional media outlets, constrained by the technological limitations of distribution technologies like newspapers and television, would make you dumber. Substack is the profit engine for things that make you smarter.

Q: Your most famous quote might be "Software is eating the world." How might this manifest in the next decade or so? Will AI automate entire business models? Will legacy companies that try to patch software onto their existing operations and business models be defeated by those that start as software companies and then move into traditional markets, as my friend Roy Bahat believes? Or is it something else?

A: My argument that "Software is eating the world" unfolds in three stages in business:

1. Products shift from non-software to (fully or primarily) software. Music CDs turn into MP3s, then streaming. Alarm clocks shift from physical devices on bedside tables to apps on phones. Cars transform from bent metal and glass to software wrapped in bent metal and glass.

2. The producers of these products shift from manufacturing or media or financial services companies to (all or primarily) software companies. Their core competencies become creating and running software. Of course, this is a discipline and culture that is entirely different from what they did in the past.

3. As software redefines products, and assuming competitive markets are not protected by monopolistic positions or regulatory capture, the nature of industry competition will change until the best software wins, which means the best software companies win. The best software companies may be those that can make the best software, whether they are existing companies or startups.

My partner Alex Rampell says that the competition between incumbents and software-driven startups is "a race where startups try to get distribution before incumbents can innovate." Incumbents start with a huge advantage, which is their existing customer base and established brand. But this software startup also has a huge advantage, which is a culture of creating software from the ground up without having to adapt to a fixed or phone-answering old culture.

Over time, I have become increasingly skeptical about whether most incumbents can adapt. Cultural shifts are too hard. Great software people often do not want to work at companies that are not optimized for them and are unaccountable. It turns out that in many cases, starting a new company is easier than trying to transform an existing one. I used to think that as the world adapted to software, time would improve this, but that pattern seems to be intensifying. The percentage of the top 100 executives and managers with computer science degrees is a good test of how much incumbents value software. For a typical tech startup, the answer might be 50-70%. For a typical incumbent, the answer might be more like 5-7%. This is a huge gap in software knowledge and skills, and you see it happening every day in many industries.

As for AI, as an engineer, I find it hard to be as romantic as many observers. AI—or, in plainer terms, machine learning—is a very powerful technology that has witnessed explosive AI/machine learning innovations over the past decade, increasingly appearing in the real world. But it is still just software, math, and digits; machines do not have self-awareness, Skynet is not here, and computers still do what we tell them to do. Therefore, AI/ML is still a tool that people use, rather than just a replacement for humans.

A famous story from the birth of computer science is that in the early 1940s, the father of computers, Alan Turing, had lunch with the father of information theory, Claude Shannon, at an AT&T executive dining room. Turing and Shannon engaged in an increasingly heated discussion about the future of thinking machines, and when Turing stood up, pushed his chair back, and exclaimed, "No, I am not interested in developing a powerful brain! What I am after is just a mediocre brain, like AT&T's president."

My view on AI is this—although, according to records, AT&T's president was my friend and actually very smart. I suspect "artificial intelligence" is the wrong framework for the technology; Doug Engelbart's term "augmentation" might be more accurate, so think of it as "augmented intelligence." Augmented intelligence makes machines better thought partners for people. Given the technological and economic implications, this concept becomes clearer. In a rapidly growing augmented intelligence world, we should see the opposite of a dystopia of unemployment—productivity growth, economic growth, new job growth, and wage growth.

I believe this is exactly what we are seeing. It is worth remembering that just 18 months before COVID, we were experiencing the best economy in 70 years—rising wages, low and declining unemployment, and basically zero inflation. The economy of the country was even improving more for low-tech and low-income people than it was for people like us, despite computers being everywhere. The unemployment rate for the most vulnerable in our society—even those without a high school diploma—was as low as it has ever been. This is far from an automation-driven dystopia. In fact, it is the return on three centuries of mechanization and computerization. As the economy recovers from COVID, I expect these positive trends to continue.

Q: Speaking of software eating the world, I have been writing that the true productive potential of the internet has only just begun, and that the pandemic will ultimately drive us to develop more distributed production systems—much like electricity allowed factories a century ago to switch from a single drive system to multiple independently powered workstations. Do you think this is fundamentally correct? Do you see more remote work and/or business operations between different companies becoming more decentralized?

A: I think you are right.

First, COVID is the ultimate cover for restructuring—my friend and former CFO Peter Currie once called it "shaking it up." For every CEO, it is an opportunity to do all the things he/she might have wanted to do in the past to improve efficiency and effectiveness—from basic adjustments in headcount and restructuring to changing geographic footprints to exiting outdated business lines—but could not because they would cause too much disruption. In any case, disruption is happening, so you might as well do everything you have always wanted to do now.

Second, it is hard to overstate the positive impact of remote work. Remote work is not perfect and has its problems, but almost every CEO I have spoken to in the past year has been amazed at how well it has worked. Remote work has worked under the extreme duress of the pandemic, with all the human impacts of lockdowns, children unable to go to school, and people unable to see their friends and extended families. It will work even better in a post-COVID context. Companies of all forms, sizes, and descriptions are rethinking their assumptions about geographic footprints, where work is done, where employees are located, how offices are configured, and whether there should even be offices.

Combining these factors, we could see a significant increase in productivity over the next five years. In my view, this productivity growth is a key part of the "roaring 20s" argument, that we will see astonishing economic prosperity in the United States in the coming years, even on top of the incredible prosperity from 2009-2020. I do not think this is a certainty, but I think it is possible—even very likely.

Third, this is not just a massive change in how companies operate, but also a massive change in how individuals live and work. For anyone who primarily works with others and/or through screens—an increasingly large part of the workforce each year, and most of those with college degrees—this is an opportunity to rethink everything from career paths to what to pursue, why to work for employers, where to live, and how to live to live. Driven by employees and employers, we have already seen a significant increase in turnover rates at large tech companies, and I expect this will continue as people reconfigure their lives for a post-COVID world. The biggest change is the separation of where you live from where you work, but beyond that, I think many people may choose to live very different lives—for example, forming new intentional communities.

There is also the fact that most employers in the past could not hire the most promising employees due to geographic constraints, but now they can—talent may not be evenly distributed, but its distribution is certainly far beyond what companies and employees could leverage—suddenly, there is an opportunity to match employers and workers around the world more effectively.

Putting all this together, you can greatly unleash the potential for economic growth in the United States and around the world. More people find better jobs, more purchasing power creates more demand, more new industries and businesses are created, more job growth and wage growth… I do not want to predict a purely blue-sky future, but the positive scenarios may be underestimated.

Q: In recent years, you have become increasingly interested in the cryptocurrency space. What are some cool things about crypto that are not getting enough emphasis in popular discussions?

A: Crypto is one of those themes that reminds me of the fable of the blind men and the elephant—there are many aspects to how it works and what it means, and you can explain it in many different ways and capture one part or another to make any point you want. For example, many people latch onto the currency aspect, either romanticizing it as a new monetary system that liberates humanity from nation-states or viewing it as a threat to economic stability and government taxation capabilities. All of these are interesting arguments, but I think they all miss a more fundamental point: that crypto represents an architectural shift in how technology operates and how the world operates.

This architectural shift is called distributed consensus—the ability of many untrusted participants in a network to establish consistency and trust. This is something the internet has never had before, but now it does, and I think we need 30 years to realize all the things we can do with it. Currency is the simplest application of this idea, but think about it from a broader perspective—theoretically, we can now build internet-native contracts, loans, insurance, ownership of real-world assets, unique digital goods (called non-fungible tokens or NFTs), online company structures (such as decentralized autonomous organizations or DAOs), and so on.

Also, consider what this means for incentives. Until now, human labor for online collaboration has either taken the form of actual companies that adopt real-world corporate norms—a company with a website—or open-source projects like Linux that do not have direct financial backing. With crypto, you can now create thousands of new incentive systems for online collaborative work because participants in crypto projects can be compensated directly, even without the existence of real-world companies. Just as great as open-source software development, more people are willing to do more for money rather than for free, and suddenly all these things become possible, even easy. It will also take 30 years to work through this consequence.

Finally, Peter Thiel made a typical sweeping observation that AI is, in some sense, leftist thought—centralized machines making top-down decisions—but crypto is rightist thought—many distributed agents, human and robotic, making decisions from the bottom up. I think there is some truth to this. Historically, the tech industry has been dominated by leftist politics, as has any creative field, which is why you see today’s large tech companies so intertwined with the Democratic Party. Crypto may represent the creation of an entirely new category of technology, in fact, a right-wing technology that is more radically decentralized and more amenable to entrepreneurship and voluntary exchange. If you believe, like I do, that the world needs more technology, this is a very powerful idea.

Q: A16Z is known for its innovations in the venture capital space, providing a broader range of services to portfolio companies, and becoming a registered investment advisor. What other changes do you think venture capital firms will explore in the coming years? Will some become more like private equity firms or banks? Are there any entirely new business models on the horizon?

A: There are some very old things about what venture capital is—Tyler Cowen used the term "project assessment," which is a process of categorizing many possible configurations of people and ideas, and then picking a few to try to create something new and important in the world with money and energy. In venture capital, this idea can be traced back centuries to whaling, where independent financiers would fund captains and ships to go whaling—legend has it that this is the origin of the term "contingent interest," which originally meant the whale carried by the ship and kept by the captain and crew. For centuries, the same "project assessment" model has played out repeatedly for various large, high-risk projects, from colonial settlements like Plymouth Colony to music/movie/TV projects.

Of course, venture capital also has some very new things—we fund the most cutting-edge ideas and projects in the world, providing funding for entirely new concepts made possible by technology. The founders we fund often break the rules and create new models that people think are impossible until they happen. This includes many of the cutting-edge crypto ideas I discussed above, many of which assume industrial organizational forms that are radically different from classic corporations.

So we sit at the whirlpool of a very old and very new combination. Venture capital itself certainly has the potential to get caught up in this whirlpool and then be completely transformed from the other side; in fact, that is what some of the smartest crypto experts predict. However… at least so far, there is nothing that can replace someone categorizing and filtering all potential projects and making big bets. This is Robert Michels' iron law of oligarchy applied to selecting, organizing, and funding ventures, regardless of what technology is involved? I am not sure, but maybe.

That said, what I am increasingly focused on is whether we can break what I call the "little boy/big boy" financing and scaling model for tech projects. "Little boy" is the Silicon Valley ecosystem that gets new companies started; "big boy" is the stock markets, investment banks, and hedge funds of New York and Wall Street, which often drive companies to scale during and after IPOs. Perhaps it is time for Silicon Valley—as a geographic location, a personal network, and a mindset—to play a more significant role in the economy, extending our companies all the way to huge without handing them over to professionals located on another literal and metaphorical coast who may not understand and value them as we do. We shall see…

Q: I remember reading an article about you in 1996 on my father's PC using Netscape Navigator. You had hair! Anyway, you became somewhat of an icon of the 90s, a time that was very important for me and the internet. So I want to ask: How did the dreams of the 1990s technologists come true? In what ways did they run into the rocks of reality? Looking back at the 90s, how should we remember that era, and which ideas from that time should we hold on to?

A: It worked! Dreams came true; it all worked out. Now we are the dogs catching the bus. What do we want this damn bus for?

Think about what we have done. Now there are 5 billion people with connected supercomputers in their pockets. Anyone in the world can create a website and publish anything they want, communicate with anyone or everyone, and access almost any information that has ever existed. People live, work, learn, and date almost entirely online. In fact, all the components of the vision of the 1990s have come true.

However. As Edwin Land, the founder of Polaroid, once said, "I am not saying you will all be happy. You will be unhappy—but in new, exciting, and important ways."

Why is everyone unhappy? I think it is because the tech industry has shifted from building tools—operating systems, databases, routers, word processors, and browsers—to being at the center of almost every significant social and political debate and contention on the planet, almost in a single step.

One way to think about it is that we have gone from pirates to the navy. People might like pirates when they are young, small, and aggressive, but no one likes a navy that acts like pirates. Today’s tech industry is very much like the navy, just like pirates.

On the other hand, a navy without pirates is not necessarily great—a suppressive force that prevents new ideas and new activities from forming, a global orthodoxy and set of rules that leads to the death of creativity—this creates opportunities and the need for a new generation of pirates.

Machiavelli emphasized in his writings that a nation needs to return to the well, back to its original founding ideas, to find renewal in later and darker times. I think the same principle applies to companies and industries. I think we should revisit the founding ideas of the tech industry—certainly John Perry Barlow's "Declaration of the Independence of Cyberspace" from the 1990s and Tim May's crypto manifesto—but also include Doug Engelbart and Ted Nelson from the 1950s and 1960s, David Sarnoff and Philo Farnsworth from the 1920s, Thomas Edison and Nikola Tesla from the 1890s, and even Leonardo da Vinci from the 1500s. I think we should view all those ideas that were not realized or fully realized in those eras as not lost but yet to be found.

Q: Let’s talk about the competition between the U.S. and China. How concerned should we be that China—at least according to World Bank data—is far ahead of us in high-tech exports? Should we be worried about China’s dominance in internet technology or drones, or their strong push in the semiconductor industry and artificial intelligence? If we should be worried, how should the U.S. respond?

A: On one hand, it is classic, and on the other, it is a puzzle, which relates to our tendency to punish ourselves to feel good. What I mean is: On one hand, China developing into a technological innovation powerhouse is good for the world because new technologies will not be hoarded; they are core ideas, and ideas tend to spread and be widely adopted. Economist William Nordhaus showed long ago that 98% of the economic surplus created by a new technology is not captured by its inventors but by the broader world; I think this clearly applies not only at the inventor or company level but also at the national level. The ideas created by the U.S. enrich the world immensely, and I believe the ideas created by China will do the same.

On the other hand, China has a strategic agenda to achieve economic, military, and political hegemony by controlling dozens of key technology sectors—this is not a secret or a conspiracy theory; they say it out loud. Recently, their focus has been on the internet, appearing in the form of their national champion, Huawei, but they clearly plan to apply the same script to AI, drones, self-driving cars, biotechnology, quantum computing, digital currencies, and more. Many countries need to think very carefully about whether they want to use the technology stacks of Chinese companies to run all downstream control implications. Do you really want China to be able to turn off your money?

Meanwhile, the Western tech champion, the U.S., has decided to self-flagellate—political parties and their elected representatives are busy undermining the American tech industry in every way possible. Our public sector hates our private sector and wants to destroy it, while China’s public sector works closely with its private sector because it certainly does; it has its own private sector. At some point, we might consider whether, at the start of this very important marathon, we should stop shooting ourselves in the foot with machine guns.

Q: If you could give a smart 23-year-old American today some advice—career advice or otherwise—what would it be?

A: Don’t follow your passion. Seriously, don’t follow your passion. Your passion may be more foolish and useless than anything else. Your passion should be your hobby, not your job. Do it in your spare time.

Instead, seek contribution at work. Find the hottest, most vibrant parts of the economy and figure out how to make the best and biggest contribution. Make yourself valuable to those around you, to customers, and to colleagues, and strive to increase that value every day.

Sometimes it may feel like all the exciting things have already happened, the boundaries have closed, and we are at the end of technological history, with no choice but to maintain what already exists. This is merely a failure of imagination. In fact, the opposite is true. We are surrounded by decaying existing enterprises that all need to be replaced by new technologies. Let’s get started.

The views and opinions expressed here are solely those of the author, and every investment and trading action involves risk, so you should do your own research before making decisions.