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Image; Tobias Higbie

Image: Tobias Higbie

 THE ROBOT TWEETSTORMS by @PMARCA

One of the most interesting topics in modern times is the “robots eat all the jobs” thesis. It boils down to this: Computers can increasingly substitute for human labor, thus displacing jobs and creating unemployment. Your job, and every job, goes to a machine.

This sort of thinking is textbook Luddism, relying on a “lump-of-labor” fallacy – the idea that there is a fixed amount of work to be done. The counterargument to a finite supply of work comes from economist Milton Friedman — Human wants and needs are infinite, which means there is always more to do. I would argue that 200 years of recent history confirms Friedman’s point of view.

If the Luddites had it wrong in the early 19th century, the only way their line of reasoning works today is if you believe this time is different from those Industrial Revolution days. That either (a) There won’t be new wants and needs (which runs counter to human nature); or (b) It won’t matter that there are new wants and needs, most people won’t be able to adapt to, or contribute/have jobs in the new fields where those new wants and needs are being created.

While it is certainly true that technological change displaces current work and jobs (and that is a serious issue that must be addressed), it is equally true, and important, that the other result of each such change is a step-function increase in consumer standards of living.

As consumers, we virtually never resist technology change that provides us with better products and services even when it costs jobs. Nor should we. This is how we build a better world, improve our quality of life, better provide for our kids, and solve fundamental problems. Make no mistake, advocating for slowing technological change to preserve jobs equals advocating for the punishment of consumers, and stalling the march of quality of life improvements.

So how then to best help individuals who are buffeted by producer-side technology change and lose jobs they wish they could keep?

First: Focus on increasing access to education and skill development, which itself will increasingly be delivered via technology.

Second: Let markets work ( this means voluntary contracts and free trade) so that capital and labor can rapidly reallocate to create new fields and jobs.

Third: Create and sustain a vigorous social safety net so that people are not stranded and unable to provide for their families. The loop closes as rapid technological productivity improvement and resulting economic growth make it easy to pay for the safety net.

With these three things in place, humans will do what they always do: create things that address and/or create new wants and needs.

The flip side of robots eating jobs.

What never gets discussed in all of this robot fear-mongering is that the current technology revolution has put the  means of production within everyone’s grasp. It comes in the form of the smartphone (and tablet and PC) with a  mobile broadband connection to the Internet. Practically everyone on the planet will be equipped with that minimum spec by 2020.

What that means is that everyone gets access to unlimited information, communication, and education. At the same time, everyone has access to markets, and everyone has the tools to participate in the global market economy. This is not a world we have ever lived in.

Historically, most people — in most places – have been cut off from all these things, and usually to a high degree. But with that access, with those tools in the hands of billions, it is hard to believe that the result will not be a widespread global unleashing of creativity, productivity, and human potential. It is hard to believe that people will get these capabilities and then come up with … absolutely nothing useful to do with them?

And yet that is the subtext to the “this time is different” argument that there won’t be new ideas, fields, industries, businesses, and jobs. In arguing this with an economist friend, his response was, “But most people are like horses; they have only their manual labor to offer…” I don’t believe that, and I don’t want to live in a world in which that’s the case. I think people everywhere have far more potential.

There is a consequence to a growing robot workforce. Everything gets really cheap.

The main reason to use robots instead of people to make something is when the robot can make it less expensively. The converse is also true. When people can make something that costs less than what robots can make, then it makes economic sense to use people instead of robots. This is basic economic arbitrage at work. It sounds like it must be a controversial claim, but it’s simply following the economic logic.

Suppose humans make widget X profitably at a $10 price to consumer. Robots can make X at a $5 price to consumer.

Economics drive X to be made entirely by robots, and consumers win. But then imagine the owner of the robots cranks X price to the consumer to $20.

Suddenly it’s profitable for humans to make X again; entrepreneurs immediately start companies to make X with humans for price $10 again

Robots eat jobs in field X. What follows is that  products get cheaper in field X, and the consumer standard of living increases in field X — necessarily. Based on that logic, arguing against robots eating jobs is equivalent to arguing that we punish consumers with unnecessarily higher prices. Indeed, had robots/machines not eaten many jobs in agriculture and industry already, we would have a far lower standard of living today.

Just as increases in consumer goods prices disproportionately hurt the poor, holding back on robots eating jobs would also disproportionately hurt the poor. The same logic applies to trade barriers (import tariffs): These disproportionately hurt poor consumers by inflicting higher consumer goods prices.

Therefore, with rare exceptions, there won’t be states where robots eat jobs and products get more expensive. They almost always get cheaper.

A recessionary interlude.

Progressive and smart economist Jared Bernstein has explored the productivity puzzle of robots eating all the jobs (or not). He points out that productivity growth was up 1% last year, and has averaged 0.8% since 2011. But what he really focuses on is the smooth trend that tracks through the numbers.

The trend suggests that the pace of productivity growth has decelerated since the first half of the 2000s. That begs an important question that the robots-are-coming advocates need to answer: Why a phenomenon that should be associated with accelerating productivity is allegedly occurring over a fairly protracted period where the [productivity] trend in output per hour is going the other way?

My own take. We’re still coming out of a severe macroeconomic down cycle, the credit crisis, deleveraging, and the liquidity trap. The prevailing pessimistic economic theories — the death of innovation, the crisis of inequality and yes, robots eating all the jobs — will fade with recovery.

(For bonus points, identify the other tech-driven economic force that could explain low productivity at a time of great tech advancement. My nomination — tech-driven price deflation lowers prices, reduces measured GDP and productivity, while boosting consumer welfare.)

Thought experiment: Imagine a world in which all material needs are provided for free, by robots and material synthesizers.

Housing, energy, health care, food, and transportation – they’re all delivered to everyone for free by machines. Zero jobs in those fields remain.

Stick with me here. What would be the key characteristics of that world, and what would it be like to live in it? For starters, it’s a consumer utopia. Everyone enjoys a standard of living that kings and popes could have only dreamed of.

Since our basic needs are taken care of, all human time, labor, energy, ambition, and goals reorient to the intangibles: the big questions, the deep needs. Human nature expresses itself fully, for the first time in history. Without physical need constraints, we will be whoever we want to be.

The main fields of human endeavor will be culture, arts, sciences, creativity, philosophy, experimentation, exploration, and adventure.

A planet of slackers you say. Not at all. Rather than nothing to do, we would have everything to do. Curiosity, artistic and scientific creativity have full rein resulting in new forms of status-seeking (!).

Imagine 6 billion or 10 billion people doing nothing but arts and sciences, culture and exploring and learning. What a world that would be. The problem seems unlikely to be that we’ll get there too fast. The problem seems likely to be that we’ll get there too slow.

Utopian fantasy you say? OK, so then what’s your preferred long-term state? What else should we be shooting for, if not this?

Finally, note the thought experiment nature of this. Let’s be clear, this is an extrapolation of ideas, not a prediction for the next 50 years! And I am not talking about Marxism or communism, I’m talking about democratic capitalism to the nth degree. Nor am I postulating the end of money or competition or status seeking or will to power, rather the full extrapolation of each of those.

This is probably a good time to say that I don’t believe robots will eat all the jobs.

Why do I believe that?

First, robots and AI are not nearly as powerful and sophisticated as I think people are starting to fear. Really. With my venture capital and technologist hat on I wish they were, but they’re not. There are enormous gaps between what we want them to do, and what they can do.

What that means is there is still an enormous gap between what many people do in jobs today, and what robots and AI can replace.  And there will be for decades.

Second, even when robots and AI are far more powerful, there will still be many things that people can do that robots and AI can’t. For example: creativity, innovation, exploration, art, science, entertainment, and caring for others. We have no idea how to make machines do these.

Third, when automation is abundant and cheap, human experiences become rare and valuable. It flows from our nature as human beings. We see it all around us. The price of recorded music goes to zero, and the live music touring business explodes. The price of run-of-the-mill drip coffee drops, and the market for handmade gourmet coffee grows. You see this effect throughout luxury goods markets — handmade high-end clothes. This will extend out to far more consumers in future.

Fourth, just as most of us today have jobs that weren’t even invented 100 years ago, the same will be true 100 years from now. People 50, 100, 150, 200 years ago would marvel at the jobs that exist today; the same will be true 50, 100, 150, 200 years from now.

We have no idea what the fields, industries, businesses, and jobs of the future will be. We just know we will create an enormous number of them. Because if robots and AI replace people for many of the things we do today, the new fields we create will be built on the huge number of people those robots and AI systems made available. To argue that huge numbers of people will be available but we will find nothing for them (us) to do is to dramatically short human creativity.

And I am way long human creativity.

This is a guest post by our newest board partner, Steven Sinofsky.

In much of the world’s urban areas, it can seem like there are more cars than people. In the U.S., there are nearly 800 cars per 1,000 people. With that comes increasing congestion, pollution, and resource consumption. Yet, surprisingly, the utilization of vehicles is at an all-time low—to put it simply, the more vehicles there are, the harder it is to keep them all in use. That’s a lot of waste.

Throughout government and private business, tens of millions of passenger cars are part of vehicle fleets used on-demand by employees. Making vehicles available when and where needed and keeping track of them is a surprisingly manual process today. Not surprisingly as a result, it’s fraught with high costs and low efficiency. In an effort to meet demand, managers of these fleets simply add vehicles to meet the highest peak demand.  This results in more cars to own, manage, insure, store, and so on. But maddeningly, most of these cars end up either sitting idle, parked in the wrong place, or awaiting replacement of lost keys.

John Stanfield and Clement Gires had an idea for a better way to tackle the fleet problem. They shared a vision for reducing the number of cars on the road and increasing the amount any given car is used, while also making it easier than any other program existing to use a shared car.

John has a physics degree from Central Washington University and a Master’s degree in Mechanical Engineering from Stanford. He’s a conservationist at heart, having spent his years just after college as a forest firefighter. Along the way he invented an engine that processed vegetable oil into biodiesel. At Stanford, he began implementing an idea for a new type of vehicle—an electric car for urban areas that would be a resource shared among people, not owned by a single person. It would be a car that you jump in and use when needed, on demand.

About the same time, Clement Gires was studying behavioral economics at École Polytechnique when he wasn’t also working as part of a high-altitude Alpine rescue unit. Clement worked on the famed Vélib’ bicycle sharing program in Paris which encompasses over 18,000 bicycles in 1,200 locations providing well over 100,000 daily rides. Clement brought novel approaches to improve the distribution and utilization of bikes to the program before coming to the U.S. to study Management Science and Engineering at Stanford.

While climbing in Yosemite, John and Clement got to know each other. Initially, they spent time pursuing the electric vehicle John began, but soon realized that the real value of their work was in the underlying technology for sharing, which could be applied to any car.

Local Motion is bringing to market a unique combination of hardware, software, and services that redefine the way fleets of vehicles can be deployed, used, and managed. There are three unique aspects of the business, which come together in an incredible offering:

  • Simple design.  Open the app on your mobile device, locate a car or just go out to the designated spots and locate a car with a green light visible in the windshield—no reservations required. Walk up to the car, swipe your card key (same one you use for the office) or use your Bluetooth connected phone and the car unlocks and you’re in control. Forget to plug in your electric car and you’ll even get a text message. When you’re done, swipe your key to lock the car and let the system know the car is free.
  • Powerful hardware.  Underneath the dash is a small box that takes about 20 minutes to install.  In the corner of the windshield is an indicator light that lets you know from a distance if the car is free or in use. The hardware works in all cars and offers a range of telemetry for the fleet manager beyond just location. In modern electric cars, the integration is just as easy but even deeper and more full-featured.
  • Elegant software. Local Motion brings “consumerization of IT” to fleet management.  For the fleet manager, the telematics are presented in a friendly user experience that integrates with your required backend infrastructure.

The folks at Local Motion share a vision for creating the largest network of shared vehicles. Today, customers are already using the product in business and government, but it’s easy to imagine a future where their technology could be used with any car.

Today, we are excited to announce that Andreessen Horowitz is leading a $6M Series A investment in Local Motion. I’m thrilled to join the board of Local Motion with John and Clement as part of my first board partner role with Andreessen Horowitz (see Joining a16z on my Learning by Shipping blog).

–Steven Sinofsky

Today I am delighted to help unveil the best robotics startup I have ever seen — Anki.

Andreessen Horowitz has been the main venture investor in Anki, which has been operating in stealth mode until today, since February 2012. Keeping my mouth shut about this company for 16 months has been one of the hardest things I have had to do since we started our firm!

Anki is one of those companies that has an exciting story on top and then a profound story underneath.

The exciting story is melding robotics, AI, hardware, and software into a new kind of entertainment experience. Playing Anki Drive, their first product, is a delight for people of any age — it’s amazing to see fully autonomous robot cars in high-speed races, making thousands of independent decisions per second, maneuvering and competing, in ways never before possible. Your jaw drops.

The profound story is that it is finally time to bring robotics and AI out of the lab and into everyday life. The Anki team brings the kind of engineering and science normally focused on multi-million-dollar industrial and military robots into the home — controlled by your iPhone. There is no limit to the kind of real-world robots and AI that the Anki platform will enable in the years to come.

We are thrilled to work with Boris, Hanns, Mark, and Patrick to help them realize their vision of ubiquitous robotics and AI. This is why we became venture capitalists.

I am tickled pink to announce Andreessen Horowitz’s participation in a new project called the Glass Collective.

Along with our friends at Google Ventures and our old partners in crime at Kleiner Perkins, we are working with Google to encourage a new generation of startup entrepreneurs to build applications for Google’s new breakthrough Glass platform.

First, Google Glass itself: Glass is a new wearable computing product and platform being developed by Google.

The thesis of Glass is profoundly transformational — to integrate connectivity and information directly into your field of vision and into your normal daily life. Instead of having a phone in your pocket or a tablet in your briefcase, why not have the Internet in your field of vision when you want it — and why not feed the Internet with live video and audio that matches what you see and hear at any time.

This provocative idea has already inspired a huge explosion of speculation and debate in the technology industry. In situations like this, I always look to history for analogies to try to understand how people are going to come to grips with new technology. One obvious historical analogy is the web browser, which is 20 years old this year — both the browser and Google Glass are windows into the Internet that everyone will be able to use.

But I’d rather reference another transformational technology that is also 20 years old this year. At the same time we were introducing the browser in 1993, Steven Spielberg released his magnum opus, the film Jurassic Park. For those of us who had worked in 3D computer graphics in the years prior, Jurassic Park was a stupendous breakthrough —  the dream of computer graphics truly come to life in a stunningly visceral and emotionally overwhelming way.

In a newly published oral history of Jurassic Park, Spielberg and his producing partner Kathleen Kennedy tell this delightful story:

KENNEDY: I remember getting the phone call where Dennis [their animation genius] said, “I think I have something you and Steven should take a look at.” We saw this wire-frame model of a dinosaur running across the screen, and it caused five or six of us to literally leap to our feet –because it was so extraordinary and –significantly beyond anything we had seen in [animation] up to that point.

SPIELBERG: The last time my jaw dropped like that was when George Lucas showed me the shot of the Imperial cruiser [in Star Wars]. I showed it to [stop-motion effects legend] Ray Harryhausen. He was absolutely enthralled and very –positive about the paradigm changing. He looked at the test and said, “Well, that’s the future.”

When it comes to Google Glass in the context of the Internet, I’m like Ray Harryhausen: Well, that’s the future.

Now, of course, a lot of work remains to be done between today and the full realization of the Glass vision. The exciting part about today’s announcement of the Glass Collective is that just like with the Internet and smartphones, a huge amount of that work will be done by third-party developers, who are going to have in Glass a brand new platform and springboard for creativity to play with. All of us involved in the Glass Collective are absolutely certain that developers are going to create thousands of ways for millions of people to use Glass and improve their lives and the world around them.

And so with the Glass Collective, we are open for business (glasscollective@a16z.com) to seed fund startups to build the first generation of amazing Glass applications.

Ladies and gentlemen, start your compilers.

This is a guest post by Scott Kupor, managing partner, Andreessen Horowitz.

We are holding back the middle class in America. But it’s not for the reasons you think, and the culprits are not those most people think of. Rather, the US government has systematically cut the middle class out of the most important wealth creation opportunity for the next 50 years. Through a series of byzantine regulations, the government has made it virtually impossible for working Americans to enjoy the fruits of America’s greatest strength: innovation.

Over the past decade or so, regulatory changes have reduced the frequency with which the stocks of high-growth companies get offered to the public during their most dramatic phases of growth. That prevents ordinary investors from getting in on the wealth creation, and hampers the creation of middle class jobs. Fortunately, there’s a simple solution.

We’ll get to that shortly. But first let’s look at the cases of two companies founded by Harvard drop-outs.

Microsoft went public in 1986 at roughly a $500 million market cap. Today, Microsoft has a market cap of $234 billion. Thus, the public investors in Microsoft have had the opportunity to realize $233.5 billion in market cap appreciation; the private investors had only a $500 million head-start. From IPO, a single share of Microsoft stock has appreciated close to 500x.

Facebook, by contrast, went public in 2012 at roughly a $100 billion market cap. That means that, whatever public stock price appreciation Facebook has over the coming years, private investors have had a $100 billion head-start against the public investors. Even if you were prescient enough to buy Facebook at its public low of approximately a $50 billion market cap, the private investors remain way ahead. If you bought Facebook stock at its IPO, to realize a similar multiple that Microsoft’s public shareholders have earned, Facebook’s market cap would need to reach nearly $50 trillion, roughly the size of the total market capitalization of all publicly-traded companies in the world.

What accounts for the differences between these two cases?

Up until the last decade, about 300 start-up companies went public each year, with more than half of those companies raising less than $50 million in proceeds (small IPOs.) The average age of the companies at the time of IPO was just under five years old.

Fast forward to the most recent decade and fewer than 100 companies each year have gone public, with less than one-third of those being small IPOs. The average age of the companies going public has also roughly doubled to 9.4 years.

Why should we care if the world has fewer billionaire public company founders and CEOs?

Because IPOs democratize wealth creation and create jobs for the 99.9% of Americans who are unlikely to be the next Zuckerberg, fueling long-term economic growth for the country and guaranteeing access for all to the American Dream.

Indeed, we are quickly creating a two-tiered investment market—one for wealthy, accredited individuals and financial institutions and a second for the remaining 96% of Americans.

If you are an accredited investor (which the rules define as someone with annual income of at least $200,000 or a net worth of $1,000,000), you can buy or sell privately-held stock of high growth, startup companies via exchanges such as Second Market and SharesPost. If you are an accredited investor, you can become a limited partner in one of over 400 venture capital firms that invest in such companies. If you are an accredited investor, you can buy privately held stock of such companies directly from the issuing companies themselves.

However, If you are among the 96% of Americans that are not accredited investors, you can wait the 9.4 years that it takes for the average startup to go public and miss out on all of the price appreciation in the private markets that inures to the benefit of accredited investors.

Despite the many very positive changes introduced by Congress via the 2012 Jumpstart our Business Start-up Act (or the JOBS Act), the middle class remains sidelined. On the one hand, the JOBS Act potentially exacerbates the already “long time to IPO problem” by increasing to 2,000 the number of shareholders a private company may have before it is required to report as a public company.

Yet, in the same JOBS Act, we welcome “the 96%” least-wealthy Americans to invest (via crowdfunding) in the absolute riskiest stage of new company formation—early, seed-stage financings. Somehow, we have concluded that unaccredited investors should be able to likely lose their hard-earned money by investing in the most risky of asset classes. Yet precisely as the risk diminishes dramatically in the subsequent stages of a company’s development, the spoils go only to the wealthy. As veteran investor Steve Rattner pointed out recently, most Americans would have better odds of winning the lottery than of successfully investing in seed-stage companies.

There’s another important implication of the changes that have lengthened startups’ path to IPOs. On average, the Kaufman Foundation estimates that companies that go public increase their post-IPO employment levels by approximately 45%. More significantly, for small IPOs, that number more than triples to 156%. This makes sense—an IPO is a capital raising event for a company. That new capital, in turn, is invested by the company to increase growth, which requires more employees to achieve.

Had we not seen IPO volumes fall off of a cliff in the last decade, the Kaufman Foundation estimates that we would have created an estimated 1.9 million new jobs. Even more significantly, Professor Enrico Moretti of UC Berkeley has identified a multiplier effect with technology-related jobs. For every one  new technology job, Professor Enrico estimates that five  new service sector jobs are created.

To put the job numbers in context, the number of total US employees in 2001 was just shy of 138 million people; 10 years later, that number was only 139 million. Thus, the potential to add a minimum of two million jobs—and potentially more with the multiplier effect—to an otherwise stagnant employment environment is immense.

What’s the solution?

A number of policy and market changes—all with well-intentioned goals—have created a hostile environment for new IPOs and, in particular, for small IPOs. Arguably the most significant among the changes was the 2001 move to decimalization. Much has been written about the “death star” of decimalization, a phrase first coined by David Weild, former vice chairman of Nasdaq. But simply stated, decimalization eliminated all of the profits from trading small-capitalization stocks. How did this happen? Because decimalization reduced the “tick size,” the minimum increment in which stock prices can trade, to a penny (from its previous level of 25 cents). Thus, a trader who previously might have purchased a block of small-cap shares knowing that a $0.25 tick size likely represented his minimum profit potential on a trade now found his minimum profit potential reduced to a penny. Facing this uneconomic situation, small-cap traders simply abandoned the market, killing liquidity for these stocks.

The 2003 Global Research Settlement (which prohibited investment banking revenue from subsidizing investment research) proved the final death knell. Pre-decimalization and pre-Global Research Settlement, traders of small IPOs could actually make money, and profits from this trading activity subsidized the publication of investment research for small IPOs. Thus, the double whammy of these two policy changes not only sucked all of the profits out of trading the stocks of small IPOs—making it very difficult for these companies to build liquidity by attracting retail investors—but also choked off the use of trading profits to fund research on these companies. Lacking the ample liquidity that active trading desks and investment research create, newly public small IPOs simply can’t attract new, long-term shareholders, raise new capital and ultimately grow their businesses.

All hope is not lost, however.

The simple act of jettisoning decimalization would resuscitate the small-cap IPO market. And the US Securities and Exchange Commission already has the authority under the JOBS Act to make this happen. The SEC could test this change in the form of a broad, intermediate-term pilot and could even provide boards of directors of small IPO issuers the discretion to determine whether doing so would be in the best interests of the company and its shareholders.

Here’s what higher “tick sizes” will mean:

—Trading desks will commit capital to trading small-cap stocks.

—Research analysts will cover small-cap stocks.

—Institutional sales desks will market small-cap stocks to their clients.

—Retail investors will return to this market.

As a result, we will increase liquidity and reduce volatility for small-cap stocks, shocking the small-cap IPO market back to life and breaking the shackles that are holding back the middle class.

I am humbled and grateful to be a co-winner of the 2013 Queen Elizabeth Prize. Thank you to the judges, and congratulations to Robert, Vint, Louis, and Tim.

I would first like to acknowledge my partner in creating Mosaic, Eric Bina. Eric co-wrote the original code for Mosaic with me — specifically all the difficult parts.

I would also like to acknowledge Larry Smarr, Joe Hardin, and all of my colleagues at NCSA and the University of Illinois at the time.

I would further like to acknowledge the distributed group of innovators and contributors who collectively built the web as we know it today during the era in which Mosaic was created.

I will donate the prize money to charitable programs that help spread the culture and foundational knowledge of engineering — such as scholarships and summer programs for engineering students.

It is amazing to think that the consumer Internet and the World Wide Web are still only 20 years old. So much important work has been done in the last 20 years — including bringing the Internet to more than 2 billion people around the world but also so much important work has yet to be done. I firmly believe our field’s best days are still ahead of us, and I can’t wait to see what the next generation of engineers will accomplish.

Ben Horowitz and I co-founded one of the first cloud computing companies which we named, appropriately enough, Loudcloud. So we’ve been thinking about the cloud longer than most folks. In fact, we had to call ourselves a “managed services provider” in those days since no one was talking about “cloud providers” in the year 2000. I have to say it’s gratifying to see both the cloud name and the cloud computing architecture going mainstream in the past few years.

This time around, we’re thinking about cloud computing as investors rather than entrepreneurs. On his blog, Ben walks through why we invested in Okta, our first cloud investment. We couldn’t be more excited.