Today, major SaaS winners are emerging beyond SV—think Datadog, Ramp, and rising stars like Traba. The LA area is home to impressive successes like SpaceX and Anduril. Historically, dispersed centers of innovation are the norm, with companies like Amazon and Microsoft arising far from Silicon Valley. It was actually the extreme concentration of the Valley era that was unusual.

It’s not just about companies; leading venture capital firms outside the Valley, such as Thrive Capital, are also thriving. New ecosystems are developing, too; for example, Brooklyn has become a hub for the crypto community. This broader distribution of innovation means more competition. Investors who may struggle to adapt to this new era are often the ones who still don’t understand Bitcoin and crypto—an indicator of their disconnection from the future of decentralized innovation.

Most of the world does not have access to a stable currency. If you live in a country like Argentina or Turkey, most of the money that you store will lose at least half of its value in a year. The reality is that most of the world does not have access to a fiat currency with stability, as the U.S. does.

When given the option, most citizens tend to save their money in trusted currencies where governments are more stable. We are starting to see a few nations moving to the dollar and Bitcoin. This includes El Salvador, and now Argentina. But if the digital world can shift to dollars, people will move their wealth to more stable currencies.

Incentives for issuance of stablecoins

Circle and Tether are the largest issuers of stablecoins, controlling the issuance of both USDC and USDT. Stablecoins are a form of IOU, and the banks issuing them can make money by, for example, investing in short-term US Treasuries. Recognizing this opportunity, other companies like PayPal will start issuing their stablecoins. The competition will intensify, but the biggest winners in this scenario will be consumers around the world.

Programmable and permissionless money

Stablecoins differ from traditional analog money. They can be programmed. You can use them within smart contracts, and there is a way to verify that a wallet has a certain amount of money attached to the account. Lending and borrowing become easier and more predictable. The lending and borrowing processes become borderless.

Before the introduction of stablecoins, users had their money locked to a specific company. For example, if you had money on Venmo, it would take 3 days for someone to cash out their funds to their bank account, which could then be transferred elsewhere.

Stablecoins allow users to transfer their money from one platform to another as fast as a transaction goes through a crypto network.

Access to capital

Most of the world doesn't have cheap access to capital. One of the significant differences between living in developed nations and developing nations is that access to capital is much easier in developed nations, partly because capital is more expensive in developing nations due to their higher interest rates.

With the unlocking of stablecoins, access to capital becomes borderless, and therefore, the development of businesses is less dependent on the region where they operate.

The world is evolving. The transition to stablecoins will be swift, followed by a move towards Bitcoin.

Let's breakdown Microsoft into its separate areas:

1. Azure: Despite starting later than most of the other Big Tech, Microsoft has gained significant market share. It is now the 2nd largest cloud provider, only after Amazon AWS.

2. LinkedIn: This social network doesn't have a clear competitor. LinkedIn has around 424 MAU and almost 900M registered users. That's pretty significant.

3. Microsoft Office: Biggest driver of Microsoft revenue. Who doesn't know Microsoft Office?

4. Personal Computing. It includes Xbox and Bing. A small portion of Microsoft revenue.

What is behind it all is Nadella's great way of deal making. LinkedIn was a clear bargain for a company that has basically monopoly in its market. Next, there is Github, where Microsoft now can own the direct relationship with developers and help integrate its offering with Azure. I think there will be more to come here where Azure and Github become more integrated. Either way, this has improved the relationship between Microsoft and developers.

Next up, Microsoft is investing heavily in "cloud gaming". It is making Xbox and Xbox live more and more valuable. It bought Activision Blizzard, the maker of games such as Call of Duty, Crash Bandicoot, Guitar Hero, Tony Hawk's, Spyro, Skylanders and World of Warcraft. It also bought Bethesda gaming, the maker of Fallout, Starfield, The Elder Scrolls and others. These acquisitions will make Xbox and the whole ecosystem much more valuable in the coming years as there will be more and more titles that are exclusive to it.

The latest deal Microsoft made was an intricate one with OpenAI, the research lab in SV, responsible for building ChatGPT. Microsoft is investing in OpenAI, which in turn is using Azure. Azure needs to build the AI infrastructure to support OpenAI training and running their models. On the other side, OpenAI tech has been integrated directly into Bing, Edge and other Microsoft products, including Github Copilot.

The truth of the matter is that Satya doesn't shy away of taking bold bets. They are already paying off to Microsoft and its shareholders. We will see what will happen in the coming years, but it is really cool to see Microsoft thriving.

The revenue generated by search for Microsoft in the search business is incremental and not essential for its survival, contrary to Google. Therefore, Microsoft had a great opportunity to gain market share and earn money, and Google can only lose in this market.

Behind the announcement, Microsoft partnered with OpenAI in an intricate deal. It seems that OpenAI is already a R&D lab inside Microsoft. Microsoft is not only using the technology as an assistant inside Edge and Bing, but Satya Nadella stated that they had the best gain inside their core ranking algorithm for Bing, which could be important for Microsoft.

Microsoft is using all the partnership with OpenAI fully. It is launching new products with ChatGPT, building the Azure AI platform, helping building up the infrastructure for training these neural networks, with GPUs, and helping Bing perform better. Satya Nadella has a history of partnering with companies and has made great acquisitions from Github to LinkedIn.

On the other hand, Google has announced Bard and they had a botched product release. Google stock suffered the same day. Though, the stock drop may be an overreaction at the short-term, I think that Google is at crossroads right now.

The rise of neural networks for creating chat bots or improving recommendation algorithms, including improving search engines, will affect Google's core business.

Either by changing the way queries are done, using a conversational interface, or by changing the way the search engine works behind the scenes. The consequences of either changes are not good for Google's finances for the next few years.

For one, if Satya Nadella follows through his announcement, we will see Microsoft go to war against Google. Google hasn't seen significant competition from a big player in the past 2 decades. If Microsoft eats some of the market share, or if it forces Google to reduce its earnings, then we will see the bottom line be affected by these changes. I really can't tell if that will affect Google's search dominance, as we haven't seen much change in market share in the past few years. That may force Google to pay a higher price to Apple, and it already pays around 12 billion per year according to reports.

What is clear is that the future of recommendation algorithms will be done by neural networks. That means that Google will have to invest even more in compute. This is equivalent of what Meta is doing for short videos and their investment there. If Google doesn't invest in the hardware, then they risk losing market share. Either will probably result in a degradation of their earnings.

Google might be finally seeing some headwinds. It will be interesting to watch if there will be any response from the company. To me the only clear winners are AI hardware companies, with the most prominent being NVIDIA. It will be interesting to watch the future unfold!

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