The internet tailwinds that propelled meteoric growth in Silicon Valley are stalling, which will accelerate zero-sum games between startups and incumbents
The Internet tailwinds that propelled Silicon Valley's meteoric growth for decades are stalling out. The ripple effects will jolt the tech industry.
luttig's learningsJohn Luttig
Context & Ripple Effects
For four decades Silicon Valley's model was arithmetic: a growing internet meant every new startup rode expanding demand, which is why the culture of nimble challengers beating incumbents held for so long — though as The Atlantic noted back in January 2020, that challenger culture was already fading even before growth stalled. Luttig's argument is the mechanism behind that fade: when the tailwind stops, growth stops being additive and becomes contested.
The related coverage shows this is not a one-off correction but a repeated pattern — investors flagged cooling valuations as early as the 2015-16 cooling, the 2022 collapse forced a reckoning with inflated valuations and overzealous VCs, and by 2025 the Valley had moved into a harder-edged AI era. This piece supplies the through-line: each cycle has been the same tailwind running out.
First-order effects
Startups lose the free ride: without expanding internet demand doing the customer acquisition for them, they must take users directly from incumbents, turning every deal into a head-to-head contest rather than a land grab.
Incumbents shift from coexisting with challengers to defending share, since in a zero-sum market their growth now comes at someone else's expense — reversing the détente of the expansion era.
Second-order effects
VCs face compressed exit math: with growth scarcer, the pattern of backing businesses that aren't software-driven gets punished faster, pushing capital toward fewer, larger bets on teams that can win contested markets.
Portfolio companies get pushed toward revenue over spectacle — the same pivot the WSJ described where downturn-era firms abandon gee-whiz projects like self-driving cars and metaverses for products that actually make money.
Third-order effects
If the pattern holds, industry structure consolidates around incumbents and capital-intensive 'hard tech' — consistent with the Valley's shift to an AI-dominated era with fewer perks and a more serious mood — because zero-sum markets reward balance sheets and distribution over nimbleness.
Regulatory and competitive scrutiny of tech intensifies structurally: when tech stops growing the overall economic pie, its fights over fixed shares draw the antitrust and political attention that a rising tide once deflected.
The trend: Silicon Valley is transitioning from a growth regime where internet expansion lifted all boats to one where startups and incumbents compete for fixed demand, with capital concentrating behind whoever can win the contest.
the internet tailwinds that propelled meteoric growth in Silicon Valley are stalling. what next? zero-sum games between web startups, the operationalization of SV, new financial infra, VCs investing in visions over numbers, and R&D beyond the internet. https://luttig.substack.com…
It's an unspoken reality in Silicon Valley that we're close to the upper bound of current tech growth. There isn't much more time or money people can spend online. Similar no quantum leap in customers like mainframe to PC to smartphone. It's now zero sum. https://luttig.substack.…
Most of what VCs write about “Silicon Valley” is crap that I don't even think they believe; but this is the best thing so far this year. (I don't agree with everything, but where he's right he's really right.) https://twitter.com/...
Biotech *should* be the next SV growth area, but we've been saying that for decades and it hasn't happened. The acceleration of remote workers may doom SV. https://twitter.com/...
John Luttig (@absoluttig): The Internet has matured. As a result, startups will now be playing more zero-sum games, requiring them to spend more on SG&A over R&D. As incumbents gain advantage, fewer $100 billion startups will be born. Great read. https://luttig.substack.com/ ...
Nice read from @absoluttig on web2 as a mature industry, and how that's going to adversely affect startups this decade. https://luttig.substack.com/ ... Fortunately for entrepreneurs, web3 is coming! $eth
Well written provocative piece One of my many disagreements with the overall thesis is it is too America centric as software goes increasingly cloud based We still have multiple parts of the world with hundreds of millions still coming online for the first time https://twitter.co…
I like John but disagree with this piece. Due to COVID: 1) Screen time is way up 2) We are digitizing medicine, higher ed, K12, and many other previously resistant verticals 3) Debt will be a bad choice in uncertain times So, the tech model has plenty of room to run. https://twit…
“VCs will need to take risks on vision, not numbers. And the founders and operators of tomorrow won't look like those of the past 20 years.” https://luttig.substack.com/ ...
This is a good post, and what it suggests to me is that high quality operators (especially ones that have industry specific expertise) are going to be even more valuable than tech talent if spend is moving from R&D to SG&A https://twitter.com/...
🤔 “Today, many startups interface with banks only as they near IPO” “Why can't a traditional bank do this themselves? 1) They don't understand how to underwrite using tech industry metrics (ACVs, churn, LTV, engagement, et al.)” https://luttig.substack.com/ ...
Super important. The big waves that tech rode out of the 2008 crisis are petering out. What carries the sector out of this downturn? https://twitter.com/...
“The blitzscaling playbook is more fitting as a reflection on the past two decades than as a prescription for the 2020s. Unit economics matter more than ever. Carefully measured growth will win.” https://luttig.substack.com/ ...
“There will be $10B companies started within segments slow to adopt technology: legal, construction, agriculture & mining are all prime candidates for massive new tech entrants. But new $100B outcomes are less likely to come from pure Internet companies. https://luttig.substack.c…
Growth/marketing/sales will be more important than ever in the post-COVID-19 world. Push → pull. Market is expanding → Market is shrinking Compete vs. startups → Compete vs. incumbents Time to sharpen our axes. https://luttig.substack.com/ ... https://twitter.com/...
agree w/analysis, but this assumes that founders stubbornly pursue zero-sum games Smart founders will rationally choose a new space w/early-Internet advantages: -low barriers of entry -positive-sum -unsaturated -outsized impact/profit potential That's crypto & DeFi today 1/3 http…
I wholeheartedly disagree. A post about the future of Silicon Valley that does not even acknowledge the potential of AI/automation or how the current crisis will affect society? Sorry, but tech is not (only) the Internet. https://twitter.com/...
Good post, but the zero sum game isn't necessarily the death of VC as we know it. All it means is that startups need to have structural advantages (and not just a better value proposition) to beat incumbents. https://twitter.com/...
How does a company like Boeing grow its airplane business? There's nominal growth in demand, but the primary growth vectors are zero sum: stealing market share or acquiring manufacturers. This will increasingly happen between Internet companies @absoluttig https://luttig.substack…