The last time I wrote, I was thinking about Peak Internet — whether innovation in web and mobile-driven productivity was over. I mentioned a few tailwinds that had defined the last decade:
- Mobile ubiquity: effectively achieved.
- Cheap data: mostly achieved.
But what I missed was a third, equally powerful force: the Fed-driven era of quantitative easing and near-zero interest rates following the 2008 Global Financial Crisis.
The Hidden Subsidy
The reality is this: quantitative easing led to a flood of private capital looking for yield. That capital, finding few attractive traditional options, poured into venture and private equity at unprecedented scale. This, in turn, enabled business models that might have had trouble existing even with 6.6 billion smartphones in the world.
Companies used excess cash not to reach profitability, but to fund user acquisition — to drive behaviors that would have built out slowly (or never) on their own economics.
Example A — E-commerce
Flipkart and its rivals discounted their way into building an e-commerce platform. The discounts weren't a temporary promotion — they were the product. Without them, the behavior might not have shifted at all.
Example B — Ride-sharing
Cab aggregators incentivized both demand and supply through cashbacks and driver bonuses to increase density. A very unique business model: reduce price, increase demand, and enable excess car supply to act as a cab fleet. The model works — but only when you can afford to bleed for years to reach that density.
Example C — Local delivery
Hyperlocal delivery of all kinds offered discounts to juice demand. But are the rake rates ever going to be sustainable? The jury is still very much out.
The Competitor Flood
Another pattern from this era: the funding of many competitors doing essentially the same job for the same users. The result was a prolonged, expensive discount war that produced fragmented markets and burned through capital at a rate that only the QE era could sustain. That pattern has become tepid as rates have risen and LPs have gotten more selective.
What Happens When the Tide Goes Out?
With a recession looming at the time of writing, and the Fed actively undoing QE while hiking rates, the era of free money looks to be over — or at least seriously interrupted — for the next several years.
One pillar of the last decade of innovation is going to get undone. The question is: how many of the business models it propped up will survive the winter?
The strongest businesses will be those where the behavior change was real — where customers would pay roughly market rates even without the subsidy. The ones at risk are those where the discount was the product, and removing it exposes a thin or non-existent margin structure.
I don't have a clean answer to which category is which. That sorting is still happening in real time. But the question feels more important than most of the trend-chasing that dominates tech conversation — because it gets at the foundations of whether an entire generation of companies was building real businesses or just efficient ways to spend VC money.
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