Buy a 10x software developer: its the best investment you can make…

…or at least that’s Venkatesh Rao’s argument in his recent Forbes.com article, “The Rise of Developeronomics.” His article combines 3 memes that I believe are transforming our economy. They will move the focus of commerce to software and to the individuals that create it.

Rao’s opening paragraphs capture the first meme well, describing the hard time we’re all having with where to put our money these days. He contrasts the current situation with the theory in evolutionary biology that reciprocal altruism and cooperation first appeared as a solution to the food storage problem. Sharing the food you couldn’t eat was a necessity and “the best bank for your excess capital was your friend’s stomach.”

Rao continues:

“Unless you are a professional investor (and probably even then), places to store surplus capital today where it will even be safe and/or not depreciate too fast (let alone generate a return) are getting incredibly hard to find. The stock market seems to be a secular, bearish bloodbath. Volatility and unexpected temporary rallies are making short games dangerous. Even staying liquid in dollars seems to have its dangers, due to threats of devaluation and unfamiliar new terms like “quantitative easing” which us average investors are starting to hear for the first time. The Euro isn’t exactly a great alternative at the moment. Investing in gold and similar commodities seems to require a somewhat apocalyptic mindset and decisions about whether or not you want access to the actual metal if things go to hell (which isn’t to say such a mindset isn’t justified at the moment).”

Rao’s solution? Invest in software developers. Every industry needs them and even when the current bubble bursts there’ll still be far more demand than supply. This is how he describes the current developer frenzy:

“In the midst of a thoroughly gloomy labor market, the genuine desperation you see in the software talent wars is almost surreal. Almost every day, I see big companies, little companies, entrepreneurs, wannabe entrepreneurs and even venture capitalists join in the hunt.”

This description is similar to an Economist magazine summary of “The new tech bubble“:

“some start-up firms are dangling multi-million-dollar pay packages in order to tempt star programmers from Google, Microsoft and other big companies. They are chasing scarce skills when the broader technology industry is on a roll.”

I agree with Rao’s description of the current situation as somewhat fantastical but it’s not surprising if one plots the increasing importance of information technology and more specifically software over the past couple decades.

Another Economist article entitled “Another digital gold rush” describes three forces that propel the software revolution forward “First, technological progress has made it much simpler and cheaper to try out myriad bright ideas for online businesses. Second, a new breed of rich investors has been keen to back those ideas. And, third, this boom is much more global than the last one; Chinese internet firms are causing as much excitement as American ones.”

Yet the Economist also characterizes some descriptions of the current upheaval as over the top: “Some excited people have likened this technological upheaval to the Cambrian explosion 500m years ago, when evolution on Earth speeded up in part because the cell had been perfected and standardized.”

The internet or software revolution, at times compared to a Khunian paradigm shift and at a minimum the most significant recent development in human technology, necessitates a rethinking of some economic principles.

In his description of the new role of developers in our economy Rao explicitly dehumanizes and objectifies developers, describing them as the objects of an all-encompassing capitalist game that we are all playing whether we want to or not. One interesting dynamic that he mentions, for instance, is the tendency for software to benefit extremes in company size. Not only are the Googles and Facebooks of the world capitalizing on the increased importance of 1s and 0s but software has also been the primary engine behind the massive decrease in the amount of capital and time required to create a startup, even in other industries. This has resulted in an attraction to the poles where the best entrepreneurs and developers succumb either to the comforts of “gilded-cage workplaces full of gourmet buffets, high-tech nap pods, and daycare facilities” or the freedom and unrealistically slim chance of a windfall at a startup. This latter career choice has become doubly attractive due to the totally overblown publicizing of the relatively few individuals who have gotten rich quick (while I’ve seen many stats on how few startups make it, I’d be curious if proportionally more are making it big since software has done so).

Eric Ries’ book, “The Lean Startup“, perhaps the most popular meme in recent tech startup lore, describes the myriad benefits of small teams focused on fast moving software projects requiring little capital and with massive potential. Applying Toyota’s “lean” methodology to product development including its focus on constant cyclical validation, constant QA and a culture of transparency, this movement has brought significant attention and benefits while reinforcing unrealistic hopes.

One symptom of software’s overwhelming influence about which I was unaware is how early talent war’s are beginning. Apple, Google and others are encouraging students as early as middle school to adopt their technology, doing their best to breed a new generation of iOS or python coders. Just as Google’s investment in Python (one of the three languages the company uses for its work) was in part a strategic bet on the growing talent pool in this under-valued language, so too, my developer-friend Matthew Huebert informs me, PowerSet mined Ruby for young talent.

I think Rao is wrong when he says that this is creating a have/have-not talent divide “that will soon surpass the infamous geopolitical North/South divide in importance” yet he is dead on in noting that it is unprecedented and significant.

Rao cites three reasons for the talent wars:

1. “software development talent is incredibly hard to assess upfront, and its value can be highly situation-dependent, which means intake volumes and intra-industry churn have to be high (since a potential star may not flourish in your environment).”

2. software skills can afford social and economic mobility – the former fad, in my opinion may not endure as long as the latter. Nevertheless I agree with Rao’s statement that “Stock options are simply not as effective in limiting mobility as the power of Russian nobility to whip serfs into immobility once was.”

3. the most important and interesting reason is the third meme I went to discuss, the 10x phenomenon, about which I’d like to learn and write more later. The concept of the 10x engineer is attributed to the now octogenarian software engineer Frederick Brooks, who described why a good programmer is an order of magnitude more productive than an average one (see here for a longer discussion http://www.quora.com/Is-the-concept-of-a-10x-engineer-valid/answer/Tom-Park).

More specifically, Rao explains why the 10x phenomenon applies to software developers in a way that it doesn’t other engineers:

“Other industries turn x’ers into 10xers primarily using software tools (a mechanical engineer equipped with CAD software suddenly becomes a 10x mechanical engineer)… [Yet] the 10x phenomenon, and the [software] industry’s reliance on it, doesn’t seem to get engineered or managed away because the 10xers keep inventing new tools for themselves to stay 10xers.”

While I still don’t completely understand this particularly allegorically interesting paragraph:

“As Alan Kay, a major pioneer of today’s software-eaten planet, pointed out recently, the Internet doesn’t have stop, shut down, or rewind buttons. Once it was turned on, history was essentially rebooted. Software began eating away at the pre-software layers of civilization on the planet, and depositing software-infused layers instead.”

I do find compelling questions about how the internet is changing history. There is no question, software and the internet are dramatically changing how history is being re-written resulting in the medium having a perhaps unparalleled effect on our stories. This relates to what Matt describes as his “random thought” that “software is a very “mental” thing… it changes how we manipulate & categorize the world at a deep level in our minds.” Like him, I too am “very curious about the psychological and sociological consequences of the software revolution.

I do not agree with “David Kirpatrick’s now famous line that every company is now a software company” and think Rao returns to hyperbole when he suggests we will replace the BC/AD distinction with BI/AI (Before Internet/After Internet). Yet I do think this hyperbole is representative of sentiment within the software industry and is perhaps indicative of a problem with its over-exaggerated sense of self-importance. While this narcissism has so far done the software industry well, I worry that it is perhaps the clearest harbinger of a bubble.

The Economist tempers these fears though with the reasonable statement that “irrational exuberance rarely gives way to rational scepticism quickly. So some bets on start-ups now will pay off.” Here the magazine echoes the National Venture Capital Association’s claim that today’s tech firms have robust business models and healthy revenues. It suggests this plus the fact that they are trading at price-earnings multiples “nowhere near as frothy as they were before the last bubble burst in 2000” should limit excesses in valuing private firms.

I remain a sceptic. I think a middle term bubble is foreseeable and favour the Economist’s portrayal “of signs of irrational exuberance among some investors.” Instead of the indefinite exponential rise or a short term crash foreseen by many I think the software revolution will likely be experienced as a bumpy economic progression for the better.

Matt recently responded to my thoughts on this issue with the following:

“Frothy excitement and narcissistic personalities may be positive signs of a short-term bubble, but are they reason to suspect that the underlying change is weak? Tech is hard for outsiders to understand; I would imagine it difficult for people who do not understand tech deeply to be able to see how much change is coming.”

Spurred in the short term by mobile, social, cloud, platform, apps and data driven advances, we may see significant efficiencies across markets and in societal, environmental and international developmental work.

From new forms of financing, think angel networks and impact investing, to dramatic new uses for internet-based technologies, the latest tech bubble and software more generally will increase standards of living. One brilliant example is Ushahidi’s free, crowd and open sourced software (LGPL) for information collection, visualization and interactive mapping. Other good uses of technology closer to home include open data initiatives from Montreal Ouvert to Open North and Buzz Data to Vote Compass increasing transparency and accountability through technology.

In sum I see software as the latest significant social evolution – a technology that like glasses or the engine have sped human progress and given us new powers. Our current bubble is ironically a sign of software’s long term importance and is the best support for developeronomics.

 

This post was first published on MontrealTechWatch

Buy a 10x software developer: its the best investment you can make…

One thought on “Buy a 10x software developer: its the best investment you can make…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s