Bas' Take on Tech: It's the interest rates
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š§āāļø Itās the interest rates
āIāve been working with the internet since ā95'. You see the pendulum move back and forthā āĀ A short clip from the āWe Are Developers World Congressā caught my attention. David Heinemeier Hansson, known as DHH for the creation of Ruby on Rails, said these words yesterday. He continues saying that the era of āfree moneyā that weāve seen from 2009-2021, has come to an end (āat least for a whileā).
Thatās not really new. Iāve covered the job market, interest rates, and the economic impact of AI on the tech industry several times in previous issues of this newsletter.
However, he makes a clear point on productivity. Money isnāt free anymore (i.e. interest rates are above zero), so productivity matters again. Instead of hiring more people, the goal is to make the existing team members more productive. So, letās take a deeper dive:
Technologies
Remember, when all these cool frameworks, like Ruby on Rails, or Django started? People came from a world of old-school Java and SOAP, moving to script languages, and REST. A major step towards simplification of development. After that, weāve seen again more complex things like GraphQL.
Self-hosted architectures are on the āre-riseā as well. In a recent paper AWS submitted to UK regulators, they say about their ācompetitionā:
AWS also says that customers may switch back to on-premises for a number of reasons, including "to reallocate their own internal financesā¦"
The Numbers
While those stories are purely anecdotal, we need to look at some real numbers.
The assumption is that āfree moneyā, i.e. low interest rates, leads to over-hiring, and lower productivity. For the broader economy (ex-agriculture), this seems true:
The period between 2009 and 2022 with low interest rates also has low rates of change in productivity. The spikes can be attributed to the aftermath of two recessions: the subprime crisis, and the covid-recession.
If thatās true, it seems likely that these observations should be reflected in founding of new companies. And, indeed, the number of startups in the āProductivityā category of YCombinator has shown an increase since 2019.
However, this is misleading, as it does not account for the total number of startups in each batch. In fact, āProductivityā startups float around 6% with no significant deviation over time.
But there is another category of YC startups: āEngineering, Product and Designā, in short: DevTools. Apart from the outliers in 2006 and 2009 (based on the small numbers of all startups), we see a sharp increase starting in 2022, quite precisely when interest rates were rising.
What are the conclusions from these observations:
Hard times create hard workers (an aftermath of recessions)
Thereās no free lunch. When money is free, productivity suffers
We will see a decline in over-engineering, probably a de-acceleration of cloud adoption, and a rise in tools and services that reduce development complexity
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