"Silicon Valley Oracle" Marc Andreessen: Cryptocurrency and Web 3 Will Bring Fundamental Technological Changes

Original Title: "Silicon Valley Oracle" Marc Andreessen: Here are three very promising technology fields

Author: Wall Street Journal

As the founder of Netscape and early SaaS company Opsware, Marc Andreessen is known as the "Silicon Valley Oracle" for his keen industry insights. He also co-founded the top American venture capital firm Andreessen Horowitz with Ben Horowitz.

With rich industry experience, Andreessen has unique insights into the development and disruption of new technologies, as well as the creation of business opportunities.

In a recent interview, Andreessen analyzed technology trends such as artificial intelligence, cryptocurrency, and Web3, and focused on why mature companies struggle to compete with digital startups.

Andreessen specifically pointed out that we are currently in a "search phase" and have identified three technological peaks to climb, namely A---Artificial Intelligence (AI), B---Biotechnology (Biotech), and C---Cryptocurrency (crypto) and Web3, believing that a large number of talented individuals are flocking to these three fields, becoming the core driving force of industry development.

Andreessen compared traditional companies with digital startups, stating that many traditional Fortune 500 companies are still reluctant to position themselves as technology companies, and true technology experts have not received top priority. In contrast, startups, led by technology experts, are closely following the pace of advanced technology. Therefore, when it comes to digital transformation, Andreessen stated that companies should find the smartest technology experts in the organization and make them the CEO.

In the fields of cryptocurrency and Web3, Andreessen believes that foundational technological changes will occur, and this fundamental shift may take 25-30 years.

Additionally, Andreessen mentioned that the internet is a trustless network, an unpermissioned environment that unleashes tremendous creative potential. However, if you want to do business or start a company, you cannot rely on a trustless network environment; the internet's native technologies cannot provide a trustworthy economic mechanism like that in the real world.

Blockchain/Web3/Crypto is the second half of the internet. It establishes layers of trust on a trustless network, and when you place trust at the top, you can bring all economic activities that cannot be conducted online onto the internet.

At the same time, Andreessen pointed out that people take the notion that "the best technology does not always win" too seriously. Many companies and MBAs interpret this as: "We don't really need to be good at technology. We can succeed through marketing." However, car companies have spent countless television ads, while Tesla has not spent a penny on advertising.

Regarding venture capital, Andreessen stated that there are two types of mistakes in venture capital. One is a commission mistake, which means you invested in a failed company or worked for one. The other is a missed mistake, which means you did not invest in Google or did not work at Facebook in 2005. The longer you stay in this industry, the more you realize that the second type of mistake is very, very serious.

Being in Silicon Valley, Andreessen also feels that Silicon Valley is no longer just Silicon Valley. Most areas of the industry, including many large tech companies, are quite resistant to new ideas.

This interview was hosted by McKinsey Senior Partner Tracy Francis and Quarterly Editorial Director Rick Tetzeli.

The full interview is as follows:

Rick Tetzeli:

In terms of technology, it seems like a confusing time right now. It's been 15 years since the iPhone was released, which defined an era, but it's still unclear what will happen next. Do you think we are in a transformation? If so, what should companies do in such an uncertain time?

Marc Andreessen:

The framework we use was defined by my partner Chris Dixon not long ago. We think of it this way: regardless of what specific period the tech industry is in, there are two main modes.

One is what we call the search mode. You are wandering in unfamiliar territory, looking for new hills to climb. You are searching for new technologies that will work and spark people's imagination. People will become interested, and new markets will open up.

The second is the climbing mode, which basically happens when you are taking advantage of new opportunities or developing new markets. As you climb the hill, you improve products and spread them to the mass market.

Of course, every market has its own adoption "S-curve," but it may take a long time to reach its peak, followed by a long period of stability. Smartphones are stabilizing, but they are still growing at a pace of adding hundreds of millions of units and billions of users each year. At any given time, there are companies in both modes.

Starting from "now," it is crucial to reflect on where we were during the global financial crisis around 2007, 2008, and 2009. It was a very strange time: everything felt like it was about to collapse, with the financial crisis, consumer downturn, and a significant drop in funding. People were worried that the events of 2000 would repeat, and the media referred to it as "Bubble 2.0."

But it turned out that we were in a period when a bunch of new hills were being discovered. Smartphones emerged, mobile broadband became widespread; residential broadband speeds began to break through; Web 2.0 and social networks became hugely popular, with Facebook and Twitter breaking through; and SaaS also began to rise.

Five or six new hills were discovered, and industry companies began to strive to climb them. It was a very magical time, forming the later prosperous landscape.

Tracy Francis:

So you believe new hills are forming?

Marc Andreessen:

Yes, they are forming. Over the past 15 years, some hills have been discovered, and people are still climbing them, but we are also in a search mode.

We believe we have already searched for three very promising new hills, conveniently arranged in the acronym ABC.

Artificial Intelligence (AI) is A, which includes deep learning, machine learning, GPT-3 (a natural language processing model developed by OpenAI), DALL-E (an image generation system from the U.S.), and all the amazing technologies.

Biotechnology (Biotech) is B, which includes genomics and the current mRNA revolution, as well as the industry revolution that combines biology and engineering, which is a mountain that needs to be climbed.

Cryptocurrency (Crypto) and Web3 is C, which revolves around distributed consensus, building trusted networks on the internet, and the comprehensive disruption that follows.

So, why do we confidently believe these are the hills to climb? If you look at their stock prices on any given day now, you will find that people's enthusiasm for these new technologies is less than it was six months ago.

But the core work we do is tracking the flow of talent. What we can be sure of is that the smartest people in the world, the brightest graduates, and the most intelligent industry professionals are flocking to these three fields, with a large number of high-end engineers, scientists, senior executives, and founders rushing in. In our world, this is not entirely predictable, but it is a predictable outcome.

Rick Tetzeli:

Around 1998 and 1999, many very smart people entered the internet technology industry, yet many of those technologies ultimately went "nowhere."

Marc Andreessen:

What you mentioned is very interesting------you are absolutely right! But I want to add a subtlety. Perhaps we need the famous 2x2 matrix here.

I would categorize "smart people" into two groups.

We primarily track engineers. The nature of engineers is that in any specific field, they will work, write software, or build some small inventions. Even when many people's fantasies about technology are shattered, engineers will continue to work. Because they are engineers, that is their job.

And smart engineers will do well in whatever job they take, though that job may not necessarily achieve commercial success, but it will certainly improve.

This is important. Because when many new technologies emerge, critics will criticize them in various ways: this new technology has all these problems! It cannot possibly succeed in solving all issues!

A typical example is the original laptop. The first laptops were the size of a briefcase, weighed 40 pounds (about 18 kilograms), and had a four-inch screen.

The New York Times mentioned in an early review that it was essentially a niche product; who would want to carry a 40-pound brick home?

They wrote, "I can't imagine a typical user would carry (a laptop) while fishing." But at that time, they did not foresee that laptops would shrink to what they are today.

Now we are just seeing this pattern again, happening in the fields of cryptocurrency, blockchain, and Web3. Many opinions about it, regarding performance, speed, etc.------websites are dedicated to listing all the errors. And engineers take these opinions seriously and see them as problems that need to be addressed, and then they start working.

Additionally, another group we focus on is truly outstanding entrepreneurs. Entrepreneurs respond to trends like anyone else. And when truly outstanding entrepreneurs collaborate with top-notch engineers, they will start companies, create products, and they are committed to refining their work, so these outcomes are also predictable.

I think you mentioned another type of smart person in your question, which is the Harvard MBA, who is a typical example.

These newcomers, elites, business masters, are all super talented, really know how to break down and rebuild spreadsheets, and truly understand how to do branding and marketing. These people are well-rounded, they move forward with 100% enthusiasm in the best way, and they will fully commit to what they perceive as the biggest opportunities.

However, they can also be influenced by trends. You may remember that back in the 1990s, there were two industry categories: B2C and B2B. B2C is businesses directly facing consumers, while B2B is businesses interacting with other businesses. When the internet bubble burst in 2000, these terms still existed, but they were redefined: B2C became consulting, and B2B became banking.

After a period away from Harvard, at least after the discovery of new hills like smartphones, social networks, Web 2.0, and cloud computing, these people returned to the tech industry. This is why techies have predictive capabilities, but MBAs do not.

Tracy Francis:

You have often said that existing companies are at a disadvantage compared to digital startups. Do you still believe this?

Marc Andreessen:

This answer is divided into two parts. One is the general situation, and the other is what happens when the market declines.

Super-smart engineers know what to build, but their numbers are limited. These people choose to work for companies that can give them significant recognition; they will choose companies where they believe the leadership truly understands what they want to do and knows how to create a culture of top-notch technology development; they want to go to companies that can provide appropriate compensation and value, listen to, and respect them; they want to go to a company where people are like them, and everyone can break through together.

The problems faced by large Fortune 500 companies today are the same as they were 20 years ago: in many large companies, true technology experts are not the primary employees of the company, and they have not received top priority.

You can see this in the company's organizational chart. For a long time, companies placed technical personnel in the IT department. And it is well known that the IT department tends to be isolated. About 20 years ago, large companies began to realize that perhaps technical personnel should not be placed in the IT department, so they created digital departments, usually led by a digital vice president.

The good news is that these programmers began to take charge of the digital departments and were valued. But the problem is that this is still just one department, one unit.

For example, at Tesla, engineers involved in the autonomous vehicle business hold significant positions within the company. Musk has always talked about them and has been in constant communication with them; they basically hold leadership roles in the company.

However, in traditional car companies, these individuals do not receive the same treatment. They may deserve it, but they still do not have it; they remain in a "backroom" state. Those leaders who have managed enterprises for 40 years still hold significant power.

This is the pattern. Tesla is managed by technical experts, and these individuals have a complete vision; they fully understand how autonomous electric vehicles work. In contrast, the leadership of large automotive companies consists of individuals trained in business, who are essentially not technical experts.

The second part of the answer relates to what happens when the market declines. When tech stocks are hit, many large companies say, "Thank goodness, we don't have to take these things seriously," but the situation changed dramatically after 2000.

Reflecting on the rise of Amazon, it is because all traditional retailers said after 2000, "Thank goodness, we don't have to worry about e-commerce," and then they left the industry. It is well known that traditional book retailer Borders outsourced its online business to Amazon, which, in hindsight, may not have been the best idea.

This situation is happening again in the current stock market downturn, as Netflix has dropped from 70% to 75% to 80%. Before this, discussions around Netflix revolved around how it was becoming a new and permanently dominant force in Hollywood, potentially even a monopoly.

However, now all these stories are saying, "The Netflix model has been broken and will never return to its original state." Meanwhile, large traditional media companies are saying, "Thank goodness, this streaming company will ultimately not become 'something important.'"

Traditional Fortune 500 companies do not primarily see themselves as technology companies; large companies often enter and exit the tech field with this mindset. Over time, this will have adverse effects on them. When these companies believe they do not have to follow the pace of technology, they still feel a clear sense of relief. This indicates that, regardless of what they say, they are primarily not technology companies.

Rick Tetzeli:

Speaking of Web3 and cryptocurrency, many people find these technical terms particularly obscure, and many skeptics hope that cryptocurrency will disappear. So, what role do cryptocurrency and Web3 play in the future business landscape? What can you say to persuade skeptics and change their business models?

Marc Andreessen:

The reactions triggered by certain situations in cryptocurrency and Web3 have far exceeded "I wish we hadn't done this." I would prefer to describe this sentiment as fear and disgust. Some of these situations have elicited extremely negative reactions.

Buffett just held his annual meeting in Omaha, where he broadly condemned this entire category of technology. Buffett is a genius investor and an extraordinary person; he always says he is not a tech person, but he feels he must condemn some aspects of this technology.

Even in the tech industry, many established tech companies say, "This stuff is stupid, it's fake." This has far exceeded the initial negative perceptions of the internet and even far surpassed the initial negative perceptions of any other technology.

This view comes from deep within, and I think there are two possible explanations.

One possibility is that they are right; you always have to acknowledge that critics may be correct. The future of the economy could be See's Candies (referring to the chocolates Buffett invested in), rather than blockchain.

But perhaps cryptocurrency makes people nervous because it involves money, which fundamentally affects them. When people think, "This is a new form of currency," or "This is a new theory about money," or even "This is a new technological form involving money," they become emotional. This may be the most obvious observation in the world: money makes people emotional.

As contrarian investors, this reaction excites us all. We view criticism as an incredible gift to our founders and companies.

If everyone else is excluding certain things, and if we are right about this matter, then the entrepreneurs who are valued will have a magical opportunity.

I believe this is a foundational technological change, a new architecture for building the next generation of computing systems. We are already convinced that Web3/blockchain/cryptocurrency is part of this foundation.

This is a mountain. It has foundational characteristics similar to the transitions from mainframes to personal computers, from personal computers to networks, from networks to mobile devices, or from traditional software to artificial intelligence. This is a fundamental shift, and building it will take 25 to 30 years.

Rick Tetzeli:

I still don't understand how what you just said can persuade a truly smart skeptic in a traditional company to believe this will be a transformation. Can you convince them that this is a "new architecture for building various software"? Is that its main content?

Marc Andreessen:

This is about the second half of the internet. When we were building the first half, we didn't know how to do the second half. In the first half, our entire idea was: the internet is a trustless network, right? As a trustless network, it is an unpermissioned environment where anyone can connect, anyone can create a website, and anyone can freely browse.

This unleashes tremendous creative potential. Before the internet, there were computer networks, but they were all highly controlled by individual companies. Companies like AOL controlled consumer communication networks. Business communication networks were provided by IBM or other companies. The internet was the first trustless, open, unpermissioned network where anyone could create. This released all the excitement.

But the internet also has a second half, which is that you cannot rely on a trustless network environment. If you want to do business, you must establish trust, right? If you want to transfer money to someone, sign a contract with someone, or come together to form a company, you need to have asset sources and ownership transactions. You want all these concepts that we are already accustomed to in the real world, such as identity, contracts, money, titles, and trust, as well as trustworthy economic mechanisms, to also exist on the internet. But the internet inherently lacks these; the internet's native technologies cannot provide these.

The most specific example is the lack of internet currency. You go to all these websites, and if you want to buy something, you still need to enter your credit card number and three-digit security code; they still run through Visa's mainframe, and may refuse you for strange reasons, and charge you. You still cannot make small payments. Why are there ads everywhere on the internet? Because there is still no small payment mechanism for content.

Blockchain/Web3/Crypto is the second half of the internet. It establishes layers of trust on a trustless network, and when you place trust at the top, you can bring all other economic activities that cannot be conducted online onto the internet. This is a big deal.

As for the other part of your question: how do you persuade others? I am already convinced that the answer is: you don't need to. Or at least, I don't need to. At this point, I feel I have not persuaded anyone to believe in anything in my life. I think no one wants to be persuaded. People are as stubborn as their children. If you tell them they are wrong, they will feel a strong threat.

I believe there are basically only two periods when you can get new ideas into people's heads. The best time is when they are young, before the world convinces them that new things "are not a good idea." This is why many new technology movements attract young people, just like art, culture, and even social movements. Kids are ambitious; they have nothing to lose, and they are open to new ideas.

The other time is later in life when some people look around and think, "Well, I really don't like the conclusions I've drawn. Maybe I went in the wrong direction. Maybe I have better choices. Maybe I joined the wrong company, and I need to switch to try something new." There are many such situations now, where people make these changes in their mid-career. We see in Silicon Valley that those who were entrepreneurs in Web 2 have decided to become entrepreneurs in Web 3 in recent years.

And the key is that people need to be prepared. This goes back to the issue of large companies. I have been doing meetings for large companies, where I comprehensively explain cryptocurrency, blockchain, and Web3. But I see that everyone in the meeting room has increasingly skeptical expressions, and they are calibrating with each other. When they show excitement about things that others think are stupid, do they not feel like fools?

I thought that by now, more large companies would be more open to these new ideas. But there is something in their culture, something in the structural composition of these companies (that forms obstacles). They still have not reached the level I believe they should.

Tracy Francis:

Marc, what are your thoughts on these large companies? If you were to tell them how to undergo digital transformation, what would you tell them?

Marc Andreessen:

Find the smartest technology experts in the company and make them the CEO.

I have had thousands of such conversations with many companies, CEOs, and boards. They are not technology experts; I do my thing. I enjoy talking to people about these things. I guide them to understand the fundamentals.

I can always tell if there are truly technical experts in the room. True technical experts do not sit at the table; they sit against the wall. They are never in the main group; they just sit there, nodding. They are thinking, "Finally, someone has come out to say these things to these people. Maybe they will finally understand."

But the problem is, it's like the conductor of an orchestra teaching me how to conduct a symphony. I would say, "Yes, you wave the stick, and then I guess the musicians will play." I would need 30 years to go back to school to learn music theory and composition and all those things to really be able to do something. But it would be too late; I couldn't do it. This is why large companies ultimately set up a digital department and why there is only one technical expert on their teams.

However, an important point is that the companies they face are not like that. Netflix is not like that, nor are Amazon or Google. Tesla is not like that. Tech companies are run by technologists, right? They are run by those who know how to do it.

Rick Tetzeli:

So, can existing companies still compete?

Marc Andreessen:

Do you remember the article I wrote 11 years ago titled "Why Software is Eating the World"? My point was that the process of software eating an industry occurs in three stages. The first step is that existing products become software products; then, the companies that make these products become software companies; and finally, the last battle, the best software companies will win.

There is a point that people take too seriously: the best technology does not always win. Business schools have many case studies like this: Betamax vs. VHS, Qwerty keyboard vs. Dvorak keyboard, Microsoft DOS vs. Apple Macintosh, and so on. One example after another shows that having the best technology does not always guarantee victory. Sometimes this is true, but many companies and MBAs interpret this as: "We don't really need to be good at technology. We can still win. We can succeed through marketing."

Car companies have spent countless television ads. But Tesla has not launched its first television ad. Tesla has not spent a penny on advertising. Why? Because its cars are highly technical, and it has actual, really good products.

So, perhaps the best products do not always win. But truly excellent tech companies will produce truly excellent products. To compete with them, you must be in the game. You need to have the best engineers in the world. You must have a world-leading technology culture to attract them. You need those who truly know what they are talking about to make the right decisions. So at some point, yes, you need to let technical experts take charge. But these companies will not do that. They are not any closer to doing so than they were 20 years ago. We are in some kind of crazy loop where they keep doing the same things but expect different results.

Tracy Francis:

Marc, let's change the subject and tell us about your experience building the institution at your venture capital firm, Andreessen Horowitz. In the past, you mentioned that J.P. Morgan served as a kind of model. Talk to us about what you are trying to accomplish as a leader in your organization.

Marc Andreessen:

We often tell a famous story about J.P. Morgan. J.P. Morgan, that somewhat gruff big guy, was one of Thomas Edison's investors. His house was the first in America to install incandescent lighting. They even placed light bulbs in his library in New York, which contained all his priceless manuscripts and artifacts collected from around the world. Later, the house caught fire, nearly burning down the study.

But for his great honor, JP hired Edison to redo the lighting. The second time, he got light bulbs that wouldn't overheat and wouldn't burn down the house.

When people ask, "Who invented the light bulb?" the answer is of course "Thomas Edison and his engineers." But who helped it become something widely adopted? Who helped people understand its importance? Who helped Edison build a company that could scale and truly bring this invention to the world? It was J.P. Morgan. I believe he was the venture capitalist of the second industrial revolution 100 or 120 years ago.

Historically, it seems that someone always has to play this role. Someone has to instill credibility in the founder before everyone knows who they are. Someone has to lend them money when the idea is not yet obvious. Someone has to help them reach the world. Someone has to help them recruit and build a team before others know who they are.

Ben (Horowitz) and I live in a world created by these very special people who made these products, founded these companies, and made these things happen. Now we have scaled------we have about 300 active portfolio companies------and we are able to work with a large number of the best founders and gain many of the best new ideas. Our goal is to be a node in the network, the best place for ideas, people, money, and business to converge.

Rick Tetzeli:

Is it now harder to scale a startup than it was when you worked with Netscape in the mid-90s?

Marc Andreessen:

It should be easier because more people are open to the idea of entrepreneurship. When I first started working, it was still strange to work for a young company because it might be an unreliable thing. People used to worry about career risk, right? "If it doesn't work out, can you go back to IBM?"

I occasionally get calls like this; we have a company that wants to hire some high-end engineers, like Carnegie Mellon graduates with AI PhDs. I heard his parents were very worried. So, I called them. He received offers from Microsoft Research, McKinsey, and Goldman Sachs, all these blue-chip companies, but when he told his parents he wanted to work for Whiz Bang in Cupertino, California, they said, "He's throwing his life away, right?"

But I can now tell them that the level of career risk is different now. If their son or daughter does not succeed at Whiz Bang, there are 800 other startups within walking distance that would hire someone with those skills at any cost.

So, it is much easier. But as a startup, the difficulty of success remains the same because the same rules still apply. You already know why the world should change, but the world does not want to change. People are too busy to listen to the pitch of another startup. People are satisfied with their jobs and do not want to leave for your startup. People are satisfied with the technology they use and do not want to buy your new product.

Every time, transforming an idea from the lab into something that truly matters to the world is still a hard battle. This process does not seem to have become easier. Perhaps it should not be. But the barriers to entry in this industry have always been high.

Rick Tetzeli:

One thing that has always attracted me to Silicon Valley is its openness to new ideas. Now that there are so many established large companies in Silicon Valley, does it still maintain the same openness to new ideas as when you first arrived?

Marc Andreessen:

Silicon Valley is larger and more mature than ever before. Today's large companies are much bigger and more numerous. Technology is key to more industries, so Silicon Valley has become increasingly broad. Of course, Silicon Valley is no longer just Silicon Valley. Due to the experiences of the COVID-19 pandemic, we finally have the ability to expand beyond any single geographic area. People around the world are part of Silicon Valley, part of its mindset and network, not just geographically. It is bigger than ever. The accompanying fact is that most areas of the industry, including many large tech companies, are quite resistant to new ideas.

Of course, every criticism I have of large companies and other industries is also a criticism of our own company. It is the same dynamics, the same patterns of human behavior. When a company becomes large and successful, they often become complacent. They do not want to disrupt the status quo. They want everything in front of them to keep running. So, yes, there is resistance.

Tracy Francis:

How do you prevent this from seeping into Andreessen Horowitz?

Marc Andreessen:

I have learned that there are two types of mistakes in venture capital. One is a commission mistake, where you invest in a failed company or work for one. The other is a missed mistake, where you did not invest in Google or did not work at Facebook in 2005.

The longer you stay in this industry, the more you realize that the second type of mistake is very, very serious. You had it. It was in your hands, and you could have done it, but you simply did not. You were not open enough; you found a way to convince yourself to give up; you listened to your parents.

It is interesting. Many times, the criticisms you notice about a company are correct, but the fact is they do not matter. If you want to find a company's problems, you can find them. However, if the good parts are good enough, then the bad parts become irrelevant. Our motto is: invest in strengths, not in the absence of weaknesses.

Many people are very smart and harshly convince themselves to give up on truly good ideas. Including us. These missed opportunities are really frustrating. If you make a mistake in a commission, the company disappears, and you will never hear about it again. But when you make a missed mistake, you will inevitably hear about that company succeeding and reaching new heights in the next thirty years. That is scary, right?

The reality is that reality is trying to instill in us the idea that you need to stop being so skeptical and cynical and instead be open to new things. Because you might miss the next important thing. You will experience a few of these missed opportunities, and they will really train you, and eventually, you will say, "Okay, I have to open my mind." I believe this will make the environment here more conducive to innovation than elsewhere.