TIME stock market

Why Silicon Valley Is Getting Hammered by the Global Selloff

An investor stands in front of electronic board showing stock information at brokerage house in Shanghai
Aly Song—Reuters An investor stands in front of an electronic board showing stock information at a brokerage house in Shanghai on Aug. 24, 2015

Aging bull or emerging bear? Investors see larger problems ahead for big tech

Last week was a relatively quiet one for tech news. So why, in a week when the S&P 500 suffered its biggest decline in 18 months, were technology stocks being hammered especially hard?

The question takes on a new relevance as US markets brace for new declines. The real culprits behind Wall Street’s turmoil last week—primarily, tumbling Asian stocks and slumping commodity markets—only became worse over the weekend. Should tech investors brace for even worse declines ahead? The near-term answer seems to be that they should.

During the past five trading days, the S&P 500 index fell 5.7%. Overall, technology shares were hurt by the selloff even more, with the NASDAQ Composite Index—more heavily weighted with mid-sized and large-cap tech companies—down 6.7%.

The biggest names in tech suffered even worse declines than the NASDAQ. Microsoft fell 8.4%. Apple and Facebook both fell by 8.8% Yahoo fell by 9%. Twitter, already having one of its worst months in the stock market, fell 11%. Google was one of the few large-cap tech shares to fare better than the NASDAQ, but it still declined 6.6% last week.

None of these companies announced any grim development that could have triggered a selloff last week. Instead, they are caught up in a downdraft of selling that was triggered by events well beyond Silicon Valley—continued collapse of the Chinese stock market, the prolonged slump in global commodity prices, and the erosion of currency valuations against the dollar in emerging markets.

These days, the most successful tech companies are global enterprises, so it’s not surprising that they would be affected somewhat by turmoil overseas. After all, these external factors have been haunting tech companies for months. Weaker currencies abroad, for example, are tied to a strong dollar, which can erode overseas revenues of multinationals.

But even so, big tech had been seen as a safe haven amid the global turmoil. Yes, Apple has exposure to China, but Facebook and Netflix don’t. And besides, Apple and Microsoft offer the kinds of dividends investors seek out in uncertain times. And nearly all of them were promising years of growth from the business models they helped pioneer.

Hence the vexing question: Why would they be sold off more harshly than other sectors where multinationals dominate? Some of the easy answers aren’t satisfactory. Yes, trading is seasonally light in August, but these are some of the most actively traded stocks. Yes, some like Netflix are overvalued, but Apple and Microsoft have P/E’s of 12 and 16, respectively—below the S&P 500’s ratio of 20. So why has Apple officially entered bear territory?

There is another explanation, having more to do with what may be a shift in the mindset of investors who grew accustomed to expecting high-growth from tech companies. Currency crises and panics in large overseas markets may not have anything directly to do with whether Americans will buy more smartphones, but they can signal big shifts in financial cycles.

Nobody is sure yet whether what happened last week was a correction or the beginning of a new bear market. Corrections are unpleasant but usually temporary—and they are often necessary before promising stocks can advance higher. But a bear market, which the US stock market hasn’t seen in six years, would slow down revenue growth and potentially even the profits.

And that’s what’s most likely worrying investors. This is an old bull market, ready to be put out to pasture. And the overseas turmoil may be, if you’ll allow the mixing of metaphors, the straw that breaks the aging bull’s back.

In other words, the tech selloff last week may reflect a growing sense of nervousness among large fund managers that have been buying not just publicly traded shares like Apple and Google, but investing in private rounds of newer companies like Uber and Airbnb with an aggression never seen before in previous tech bull markets.

These private tech companies–called unicorns because a billion-dollar valuation for a private startup was once unheard of (although now there are 131 of them)–don’t have financial data available to public scrutiny. It’s hard to know which of them are even close to making a profit. Or, more crucially, whether they have enough cash to carry them to profitability should the economy slow down in the future.

Individual investors have been largely shut out of investing in these companies, but institutional investors like mutual or private-equity funds have bought into them on a scale that wasn’t even dreamed of during the dot-com boom. And after last week, those fund managers may be wondering if they overextended themselves in the tech sector by gorging on these private rounds.

If the selloff is more than a correction—that is, if it’s a true bear market—many funds could be left having to write down losses from these private investments when their valuations drop. And unlike stocks in the public market, privately held shares are much harder to sell because they are illiquid. Some funds may already be selling their public tech shares at a profit as a hedge against this risk.

A few venture capitalists have been warning about this danger for a while. Bill Gurley of Benchmark, a veteran of the dot-com crash, has been sounding for a while like the VC version of Cole Sear, saying he sees dead unicorns this year. Last week, noting the drop in tech stocks, he warned again that investors would soon shift their focus from revenue growth to profitability. Others joined him in predicting zombie unicorns.

These warnings are coming from VCs who, unlike the rest of us, are in a position to see the financial health of many private tech companies. The day may come when the small investors who were barred from buying shares in these so-called unicorns are glad they never had the chance. In the meantime, the mere prospect of dying unicorns seems to be scaring fund managers. Scaring them even more than what’s happening in China.

TIME Television

There’s a Silicon Valley Easter Egg in Google’s Big Announcement

Isabella Vosmikova—HBO Episode 1 of HBO's Silicon Valley

Can you spot the link?

Google poked fun at itself in its major restructuring announcement that the company will now be a subsidiary of a new company, Alphabet. The news release furtively links to HooliXYZ, a Google parody from the HBO show Silicon Valley.

Fans can access the link by clicking on the period after the sentence “Alphabet will also include our X lab, which incubates new efforts like Wing, our drone delivery effort.” In a bit of meta comedy, Google’s own announcement was posted on a page with the domain “.xyz.”

The comparison between Hooli and the newly imagined Alphabet, designed to separate Google’s more experimental projects from its search engine, is apt: as the parody page explains, “HooliXYZ is Hooli’s experimental division. The dream kitchen. The moonshot factory. The laboratory of possibility. The midwife of magic. The womb of wonders.”

Sounds like HooliXYZ might be a great acquisition for Alphabet.

TIME Labor

Why Startups Are Making the Expensive Switch to Traditional Employment

"After a while you realize that some of the trade-offs you were making weren’t really good trade-offs"

Correction appended, Aug. 5

On-demand valet service Luxe announced Tuesday that they were expanding to an eighth city, Philadelphia—but that development was tiny compared to news that went out late last week: the company announced that the hundreds of workers who run around cities like Philadelphia in bright blue Luxe jackets, picking up and delivering people’s cars wherever users are, will all be converted from independent contractors to traditional employees.

That’s a move that will cost Luxe, as well as other hot startups that are reverting to doing things the old-fashioned way (at least in part) amid a mess of lawsuits over the status of workers in the on-demand economy. But they stand to gain a lot in return.

Many Silicon Valley companies have followed in Uber’s tracks and developed business models that assume their armies of workers will be treated as contractors. While the brass can’t legally tell contractors when to be on the clock, how to do their job or what to wear, they also don’t have to pay them overtime or guarantee them minimum wage or remit payroll taxes. The savings for companies is huge—probably in the billions per year for a business like Uber.

But while traditional employees cost more, employers get to exercise far more control over them, telling them precisely what to do and how to do it and, for that matter, in what color and style of outfit.

“It has to do with controlling the user experience,” says Luxe CEO Curtis Lee of why they are “making the switch” two years after the service started in San Francsico.” After a while you realize that some of the trade-offs you were making weren’t really good trade-offs.”

Under the contractor model, Lee says, the leaders at Luxe hadn’t been able to schedule workers for unpopular hours like late nights on Friday and Saturday; they could only bribe them to come online with higher rates of pay, as Uber does with surge pricing. They couldn’t provide thorough training or demand that they be considerate of other valets. “Now we can actually say, ‘Hey, you need to address the customer in a certain manner,'” Lee says.

Kevin Gibbon, CEO of San Francisco-based Shyp, says they made the same change earlier this summer because they wanted more “quality control” over couriers responding to on-demand shipping orders. Sometimes the closest courier wouldn’t feel like doing a job, so users would be left waiting for a more willing courier who was 30 minutes away. Other times couriers would respond to a request and then refuse to take whatever the user wanted to ship, perhaps because it was too unwieldy. Under a contractor model, there wasn’t much they could do about that. “As a contractor you have the right to accept or reject a job,” Gibbon says. As employees, part of the job description can include accepting all requests.

As an employer, Shyp will have to reimburse employees for job-related expenses like gas and car maintenance. Managers will have to make sure workers are taking breaks. Yet Gibbon hopes that they’ll also get more loyalty from couriers, who will feel more attachment to the company and will be more likely to stick around—saving Shyp from onboarding someone new and gaining them the productivity of a more experienced courier. People who want more a career path and less of a temporary gig might be attracted to working for them instead of dozens of other startups, he says.

Both Gibbon and Lee deny that the slew of worker-status suits against companies like Uber, Lyft and delivery company Postmates have anything to do with their decisions to abandon the contractor model. But plenty of startups may look at a company like Homejoy and see a cautionary tale. The on-demand cleaning service recently put up its mop for good, saying the “deciding factor” was four lawsuits it was fighting over worker classification.

One of the companies fighting a class-action suit is Instacart, a rapidly growing $2-billion startup that facilitates on-demand grocery delivery. When the business started, most of their contractors were both shopping for groceries and then delivering them, but over time those jobs have split. While some workers still do both jobs, many either spend all their time shopping in a store or out delivering the bags. Instacart recently announced that after a successful pilot, they would be offering some in-store shoppers the chance to become employees.

“We quickly learned that there were a lot of improvements and efficiencies with this new model,” says Andrea Saul, VP of communications, who could not comment on the pending lawsuit. “Shoppers got better and more accurate at picking items, so we had fewer order issues. Shoppers also got faster at picking items, so we had more on time deliveries.”

Instacart also noticed a better retention rate among those granted employee status and found them easier to integrate into the company culture. “Ultimately, even though the model was costlier for us, the change improved our customer’s experience,” says Saul. The lawyers pursuing the case applauded the change but say it doesn’t affect the years of expenses, for instance, they believe are due to more than 10,000 workers. Those delivering groceries continue to shell out for their own gas and car maintenance.

The main argument that companies like Uber make is that forcing them to classify their drivers—or cleaners or delivery people—as employees would force them to do away with the freedom and flexibility that attracts many workers to the on-demand economy. Contractors get to work as much as they want when they want. “If I don’t want to go out one night because my stomach’s upset or there’s a Game of Thrones marathon on or my cats are being really cuddly, I’m just not going to go out,” says Chicago-based Christopher Gutierrez, who loves driving for Lyft. “I can’t have middle management telling me things and having to abide by different codes.”

In a recent motion fighting a class action suit, Uber’s lawyers said they might be forced to change their entire business model, making drivers work in set shifts and requiring that drivers work only for Uber.

The smaller companies making this change say they’ll be able to retain flexible hours. Luxe’s Lee says they’ll set no maximum or minimum valets have to work or tell part-time workers they can’t also work for Lyft. While he expects more companies to follow in their footsteps, he also says that he doesn’t believe that the traditional employment model works for every company. Like a growing chorus of Silicon Valley disrupters and academics, he believers America should rethink employment.

“There are two old paradigms that were created long, long ago in a different world,” he says. “There really needs, eventually, at some point, to be maybe like a third classification.” The great unknown is what, even if there was the political will to create such a thing, that third category would look like.

Correction: The original version of this story misstated when Luxe announced a change in the employment status of its workers. It was July 30.

TIME twitter

Twitter Just Apologized For Holding This Controversial Party

LEON NEAL—AFP/Getty Images

There was even a Twitter beer pong table

When your Silicon Valley workforce is mostly male and you want to throw a themed-party, what to do? Well, a Twitter team decided it would be a good idea to hold a frat-themed celebration in San Francisco recently.

The company quickly apologized for the misstep, which included “Twitter Frat House” signage and a beer pong table complete with a Twitter logo.

On Tuesday, images of the frat party surfaced on social media when a less-than-enthused female employee brought attention to the event using Facebook, which was quickly removed, but was grabbed and tweeted by the group Global Women in Tech:

Jim Prosser, a Twitter spokesperson, apologized in a statement to Fusion: “This social event organized by one team was in poor taste at best, and not reflective of the culture we are building here at Twitter,” Prosser said. “We’ve had discussions internally with the organizing team, and they recognize that this theme was ill-chosen.”

As the publication notes, Twitter is currently embroiled in a gender discrimination lawsuit in which a female software engineer, Tina Huang, said that promotions are given more frequently to men. Only 10% of Twitter’s tech employees are female, according to company data released last year.

TIME Innovation

How Privatizing Marriage Would Be Disastrous

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

These are today's best ideas

1. Why privatizing marriage would be a disaster.

By Shikha Dalmia in the Week

2. Is the United States working on a new nuclear weapon?

By Oliver Lazarus in the Takeaway

3. Why America’s workforce is shrinking and Europe’s isn’t.

By Tami Luhby in CNN Money

4. The Pentagon is courting Silicon Valley and leaving traditional defense contractors behind.

By Leigh Munsil and Philip Ewing in Politico

5. New drugs for Alzheimer’s could treat Parkinson’s and other brain diseases.

By Jon Hamilton at NPR

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME jeb bush

Jeb Bush Hails Uber In San Francisco, Doesn’t Win Driver’s Vote

Jeb Bush
Eric Risberg—AP Republican presidential candidate, former Florida Gov. Jeb Bush, puts on his seat belt getting into an Uber car after speaking at Thumbtack, an online startup in San Francisco.

The Uber driver who picked up Jeb Bush Thursday on a San Francisco street corner doesn’t normally vote and didn’t recognize the Republican frontrunner. But the experience of driving a man who could be President, and talking about it with a reporter, may get him to the polls this year.

He said he will probably pull the lever for Hillary Clinton.

Bush is traveling around San Francisco Thursday using the ride-sharing app, the latest embrace by the Republican of the company, which has fought taxi regulations and has come under fire from some Democrats for the scant benefits it offers its network of independent drivers. The GOP has emerged as the company’s staunchest defender, as the party tries to align itself with the hip, and liberal, Bay Area culture as they appeal for younger voters and top donors.

Munir Algazaly, 35, an immigrant from Yemen who has been driving Ubers for a year and a half, said “I had no idea,” that the 6’4″ passenger riding shotgun was the Republican presidential candidate.

Algazaly drove Bush to Thumbtack, a company that matches independent and small-business professionals with consumers—a startup founded by former aides to President George W. Bush that appeals to the GOP’s free-market sensibilities. Bush tweeted that he gave his driver a five-star rating, the highest possible, after the ride.

For nearly an hour before Bush arrived, every car that had the misfortune of slowing near the reporters in the rush-hour traffic was nearly surrounded by television cameras and reporters hoping to view him stepping out of the car. The false alarms continued, even after a campaign aide confirmed that Bush was arriving in a Toyota Camry, with the gaggle of cameras crowding around random vehicles, including this reporter’s taxi when he arrived late bearing a coffee.

About a dozen employees of Thumbtack were waiting by the loft windows of their headquarters to take photos of Bush when he arrived.

In the liberal stronghold, the response from passersby when they realized Bush was infiltrating their Democratic redoubt was mixed. One woman laughed heartily before flashing a “rock-on” hand sign, after briefly being accosted by the cameras in another case of mistaken identity. Another passerby, when informed that the press was waiting for Bush, stuck out her tongue and sneered before driving away. A few more drivers honked and yelled.

Responding to a question from a reporter, Bush reported that his father, former president George H.W. Bush, is “stable” and “doing okay, I think” after a fall Wednesday in which he broke a bone in his neck.

Algazaly said he didn’t recall what Bush’s specific Uber rating was, adding that they talked about the city and traffic as they drove.

While Bush took questions for 10 minutes from reporters after his town hall at Thumbtack, an aide called another Uber for Bush, asking the driver, who was quickly surrounded by cameras and reporters, “Can you handle this?” The driver, who said he was a Democrat, was game, and as reporters shouted questions at him and photographers blocked traffic to take his photo, he slowly pulled away from the curb, saying, “We’ve got to go.”

Read next: Jeb Bush Wishes He Could Speak Like Obama

Listen to the most important stories of the day

TIME Charleston

Apple, Microsoft CEOs Call for End to Racism After Charleston Shooting

President Obama Speaks At Summit On Cybersecurity And Consumer Protection At Stanford University
Justin Sullivan—Getty Images Apple CEO Tim Cook speaks during the White House Summit on Cybersecurity and Consumer Protection on February 13, 2015 in Stanford, California.

The issue has resounded across social media

In the wake of last week’s shooting at a church in Charleston, S.C., that left nine dead, some voices that rarely pipe up on national issues resounded across social media: those of Silicon Valley CEOs.

Over the weekend, executives from Salesforce, Apple, Microsoft, and other tech companies took to Twitter to express condolences for the victims’ families. And some took it even further, joining some politicians to call for South Carolina to take down the Confederate flag that flies in the capital.

Mark Zuckerberg, of course, took to Facebook to express solidarity with Charleston. “Hope can overcome hate,” he wrote. But Slack’s CEO Stewart Butterfield certainly takes the cake for being the most outspoken in the Silicon Valley bubble. Butterfield took issue with a Wall Street Journal editorial on the tragedy, which said that the shooting was not rooted in racism. This is Butterfield’s first tweet, and the rest is here.

TIME Video Games

Watch Conan Get Dominated in Halo by the Stars of Silicon Valley

Conan is on the red team, of course

No one has gained as much notoriety for being terrible at video games as Conan O’Brien.

The late-night talk show host has taken his tongue-in-cheek celebration of the medium to a new level in a recent segment in which he (poorly) attempted to play the upcoming Halo 5: Guardians. Conan, along with Andy Richter and Aaron Bleyaert, squared off against Silicon Valley stars Thomas Middleditch, TJ Miller and Zach Woods in a multiplayer bout of the new first-person shooter.

Conan was predictably awful, spending one round trying to shoot out a pane of impenetrable glass to release a shark that’s actually just there for decoration. At one point the warring factions call a truce, only for Conan to “accidentally” take a potshot against one of the Silicon Valley stars.

Check out all the antics in the video above.

TIME Apple

Apple’s CEO Tim Cook: Diversity Is ‘the Future of Our Company’

Tech leader says the industry is to blame for not hiring enough women

Apple’s CEO Tim Cook doesn’t mince words when asked about the importance of diversity: “I think the most diverse group will produce the best product, I firmly believe that.”

In an interview with Mashable ahead of Apple’s Worldwide Developer Conference (WWDC) Monday, Cook told the website that Apple is a “better company” by being more diverse. He says a lack of diversity in tech isn’t because women don’t want to be involved in the sector. Instead, Cook places the blame on the broader tech community saying generally, “We haven’t done enough to reach out to show young women that it’s cool to do it and how much fun it can be.”

Apple is certainly part of the problem. A workforce data report last year showed that just 30% of its global workforce is female. And leadership positions at Apple skew even more white and male than the broader workforce. Cook has in the past said he’s not satisfied with the numbers.

The gadgets maker is also putting a little money up to match Cook’s interest in promoting diversity. Apple generated headlines earlier this year when it donated more than $50 million to groups that want to get more women, minorities and veterans working in tech. But let’s not throw Apple a parade just yet. The company posted a profit of $13.6 billion in the second quarter alone.

More: Read about Apple in the latest Fortune 500 list

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