7 trends that Mary Meeker missed in her Internet Trends 2016 Report
I always eagerly look forward to venture capitalist Mary Meeker's annual Internet Trends Report. This week's 213-slide presentation (which she covered in roughly 20 minutes!) at Code Conference in California was no exception. To me, it is one of the best presentations out there because it is data-driven and sums up in which direction the Internet industry is going.
Today, Mary Meeker is a general partner at venture capital firm KPCB which holds stakes in companies as Snapchat, Uber, Spotify and Slack. Her first presentation back in 2001 when she was still at Morgan Stanley, however, was just 49 slides. This "slide deck inflation" is perhaps the best indicator that the Internet has become an integral part of our lives by now.
Let me first round up the Internet Trends 2016 Report. In a nutshell, it features eight 8 chapters:
- Global Internet trends: 3 billion Internet users (42% penetration); smartphone user/device growth decelerating; India has more Internet users than US
- Global macro trends: slowing global GDP growth, easy growth is over
- Advertising/commerce + brand trends: advertising market +20%, mainly driven by mobile; still many marketing dollars still allocated to legacy-media
- Re-imagining communication via social platforms: video, image, messaging: visual communication wins from written communication; Asia shows the way from social to business messaging
- Re-imagining human/computer interfaces: voice and transport: voice as computing interface; US leadership in autonomous cars
- China: Internet leader on many metrics: e.g. China accounts for 70% of on-demand transportation bookings
- Public/private company data: global tech giants have BIG cash reserves (Apple $223 billion); non-tech giants acquiring tech startups to catch up
- Data as a platform/data privacy: data generation accelerating with users starting to have privacy concerns
Last year, the general prevailing themes in the Internet Trends Report 2015 were the on-demand economy, mobile (chat apps), changing media consumption, whether tech is in a bubble and, generally, the transformation of work. I commented the 2015 report in detail last year which can serve as an excellent primer for this post (I couldn't beat the rap version though).
I believe this is an excellent moment to pause for a moment and reflect upon trends that did not live up to their expectations during the past year or were little featured in this year's report. Which Internet trends happened in 2015, continued or slowed down in 2016? Any bubbles that got punctuated?
Here are the 7 trends I found underrepresented in Mary Meeker's KPCB Internet Trends Report 2016:
1. On-demand and sharing economy: the Uber model doesn't always translate and has its limitations
A non-stop parade of on-demand start-ups has seen the light since Uber. The idea sounds compelling - push a button, pizza arrives - but the "Uber for X" investment thesis clearly doesn’t always fly and entrepreneurs and investors found out the hard way. The reason? Mostly unit economics and cutthroat competition. Over the last year this resulted in startups either pivoting away from the on-demand model or retooling their monetization model (introducing subscription model, increasing fees, decreasing on-demand workers' pay, etc.). What's happening per vertical:
Food delivery: the so-far unprofitable fight for lunch and dinner (any opportunities in breakfast?!)
- Kitchit and Kitchensurfing: RIP, the Uber for dinner parties did not scale
- SpoonRocket: RIP, cited competition and the inability to raise more funding (others said the meals were terrible and prices increased). "Online kitchen" peers Munchery & Sprig (West Coast) and Seamless (East Coast) have been able to achieve a larger user base and are trying to bind customers through loyalty (membership) programs which should lead to the much needed economies of scale
- Caviar: acquired for reportedly $90 million by Square which can add another product to its suite of services that can help businesses grow
- Doordash: latest $127 million round was a down round
- Instacart: had to increase delivery charge to $6 (up from $4) and reduced pay for workers to $10 (from $15) per hour for orders from Costco, other shops $7.50 (down from $10)
- More competition arriving from the 800-pound gorillas UberEats and Amazon's Prime Now
Delivery
- Google Express: unclear future, recently shut down two delivery hubs because of rising costs of the drivers and vehicles
- Postmates: making money on every delivery and recently announced a promising integration with Shopify
Errands and tasks
- Homejoy: RIP, unable to close a large round, partially because of pending law suits which made Homejoy a much riskier bet for investors
- Handy: in its fourth year now, completed 1 million bookings its first 3 years (with 85% of revenue coming from cleaning), labour cost could rise 30% if it would need to shift on-demand workers to employee status
Parking: it turns out to be very hard to make money parking cars; all moving away from the on-demand model; rising cost of convenience for user
- Sidecar: RIP, sold in parts to GM
- Caarbon: RIP
- Vatler: RIP
- Luxe: last $50 million round led by Hertz; pivoted from on-demand parking to scheduled parking with the aim to rent out the same parking spot several times a day; initially too cheap ($5/h or $15/day) and increased prices to the same level or more than regular parking; convenience proposition is still valid but how price sensitive will users be?
- Zirx: pivoted to B2B
- Valet Everywhere: trying to generate more revenue through subscription plans
Transportation: aggressive (but expensive) expansion
- Uber & Lyft still going strong
- Didi recently bagged $1 billion from Apple which gives them an edge to win the Chinese market (and Apple a way to ease its ties with the Chinese government)
Accommodation/home-sharing
- Airbnb leading with a strong push to solicit business travellers to its app. It also has an inherent advantage that a few nights stay form a much bigger "basket size" than the average Uber ride.
Shared office space
- WeWork: doesn't own any office space but applies traditional arbitrage; doubled in valuation over the course of 6 months, from $5 billion to $10 billion
Not everything is getting Uberized just yet. Many forget that Uber offers a service which users frequently need (transport) and makes it 10x better than the rather outdated, customer-unfriendly taxi-experience. Additionally, Uber can access a large pool of on-demand workers as driving is a "skill" the majority of adults have (different from cleaners, personal shoppers or massagers).
But what about the users of all these on-demand apps? A recent study by Pew Research Center indicates that ride-hailing, grocery delivery, home-sharing and shared office space remain unfamiliar apps to the majority of people. Even in the US, a market famous for its early adopters, the sharing economy has not percolated into the lives of the average American. Indeed, the on-demand and sharing economy users is young, urban and wealthy, i.e. people with busy schedules and disposable incomes. The data speaks for itself:
- >50%: second-hand marketplaces is the only online service half of Americans have used (e.g. eBay)
- 41% of Americans have used same day delivery (e.g. Amazon)
- 15% used ride-sharing/hailing service (e.g. Uber)
- 6% got groceries delivered (e.g. Instacart)
- 4% got help for household tasks (e.g. Handy)
- 0.5% of Americans work in the sharing economy
Yes, the future has arrived. Everyone imagined a new world of on-demand everything. It's just not widely distributed yet.
2. After mobile, what's the next next thing? Best guess: AI.
"So yeah, we think this little piece of nifty tech can cut your workforce by 10%. And that's our most conservative estimate, you know."
The above could well be a sales pitch of an AI (artificial intelligence) startup in the mobility space. Or in financial services. Or in any other industry in which startup are building algorithms that make sense of large data sets without relying on only rule-based programming. The algorithm can learn, and it does much faster than humans.
AI is penetrating virtually every industry, a few examples:
- Law firm BakerHostetler has formally hired its first “digital attorney" called Ross, an AI-powered legal researcher. Ross is built on IBM’s Watson and responds to questions by analyzing billions of documents.
- Amazon and Google want to control your home: Alexa is integrated in the Echo speaker or in the Fire TV (Jeff Bezos claims more than 1,000 people are working on the Echo and Alexa!). She (he?) can shop for you, pay your bills and answer questions. Google recently introduced Google Assistant and its hardware product Google Home. A lot of money can be made by combining three crucial pieces of the puzzle: superior AI, hardware and a strong user base.
- Facebook has M, Apple Siri, Microsoft Cortana
We need to recognize the realities of AI and its ability to leave scores of people unemployed. Elon Musk recently asked himself:
"If we have self-driving cars, what's going to happen to 12% of the population whose job it is to drive a car or truck?"
3. Wealth inequality and the future of work
Elon Musk is spot on, the on-demand workforce is simply an intermediary step towards AI-powered self-driving cars. In San Francisco, the ancestral home of AI, many have started to question whether technology, for all its benefits, has not widened the wedge between rich and poor. AI could widen the wedge even further because many jobs will simply cease to exist. And while well-educated, white collar workers might still believe that their careers are safe from the advances of AI, the opposite is true. Some very top professionals will still exist, but such jobs will become much more rare, not necessarily because these cannot be replaced by robots but rather because society will demand certain jobs to be executed by humans, think a doctor or a judge (jobs with high accountability).
Two quick examples:
- Kinema Systems: builds robots replacing warehouse and factory workers. These robots are capable of breaking down pallets of boxes regardless of the size and shape or packaging
- Banking: is likely to see a ~30% reduction in staff during the period 2015-2025 (and that's according to a bank, Citi)
Our organizations and employees are already lagging behind in the skills and language of the Internet age. Once AI muscled itself into organizations, human jobs will be gradually squeezed out. It is hard to escape the conclusion that there will be less work for people to do - what will be left for humans? How can society handle this?
We can imagine a world in which, at least initially, professionals are aided by robots. For instance, a doctor can be assisted by an AI to digest medical literature and summarize the relevant readings. But the human involvement is expected to fade out gradually and at some point, not even too distant in the future, become obsolete. Also, during this process the world's wealth will skew to fewer and fewer people because technology gives an increasingly small group of people leverage and compounding differences in ability and amount of work.
Sam Altman of YC recently addressed this topic and the notion of a universal basic income to ensure people can survive if they can no longer participate in the economy. But a universal income is likely not sufficient: work brings structure to many people’s lives. There might be a point in the future when we decide to give back some work to humans (instead of having robots performing it) because they will be happier.
I was hoping Mary Meeker would include in her Internet Trends 2016 Report a few slides about the incredible impact the fourth industrial revolution will have on society. Maybe next year?! If entrepreneurs (and the venture capitalists backing them) need to create the future, then we all have a vested interested in creating a sustainable tech ecosystem and society.
4. Big data comes with great responsibility: don't be evil
Today, Facebook has >1.65 billion MAU (monthly active users). This figure makes Facebook in fact the biggest country in the world! An estimated 30% of US adults get their news through Facebook. This means that Facebook has become an entertainment and news curator that can reach huge audiences and shape how the public gets its news. The controversy today is around opaque editorial choices that Facebook makes using its proprietary "News Feed" algorithm and whether it serves as a digital filtering system that can flatten and polarize democratic discourse and influence, for instance, the outcome of a US presidential election.
What Mark Zuckerberg has built in about a decade is truly amazing in all aspects, but also comes with great responsibility. Facebook owns the virtual representation of 1.65 billion human connections in the world. And all the data they exchange.
Studies by brand consultancy firm Prophet showed that people don’t trust Google and Facebook anymore. Increasing mistrust could have far-reaching consequences on the uptake of technology - do you want huge amounts of personal data sucked into, say, your Amazon Echo? It is up to the end user to decide whether it wants to "pay" with data for using an application, but often will have no choice and could be excluded from a lot of technology otherwise. JPMorgan CEO Jamie Dimon warned in its most recent shareholders' letter that users often don't realize the amount of data they are sharing, and even less how it can be used (against them). Trust in such user-tech company relationship is imperative and tech giants could use market value because of mistrust of their users.
5. The winner-takes-all can lose as well
Yahoo! was founded in 1994 and was the most popular destination on the (nascent) Internet by 1998. In 2008, even Microsoft made an unsolicited $44.6 billion offer to absorb Yahoo!
Fast forward to today: Yahoo! embodies the fall of a legacy Internet company. After being focused on all of the wrong things, Yahoo!’s core business is worth next to nothing and a handful of media vultures is circling around its corpse to cherry pick what's left. Indeed, there is not much left and about 85% of Yahoo!'s market capitalization is attributed to the stake it holds in Alibaba which it failed to spin off last year because of tax reasons.
Verizon is so far the most credible potential acquirer with the help of Bank of America's balance sheet to provide necessary financing. Verizon could tap Yahoo!'s global audience of around 1 billion monthly users and incorporate Yahoo!'s digital marketing technology. The same investment thesis applies to AT&T but to a lower degree to the Warren Buffett-backed consortium led by Quicken Loans founder Dan Gilbert.
We will know the outcome soon as the bid deadline for Yahoo! is on Monday, June 6. While Yahoo! is one of the more extreme cases, note that more examples exist: Microsoft was the absolute software monopolist for about 20 years, built a mobile OS before all the rest, but completely lost the battle for mobile.
The key learning here is that while all tech giants are making tremendous efforts to stay in the running, we do not know how durable tech companies are over a longer timeframe. Dependent on the market, the Internet economy is only about 20 years old and an increasing number of disruptive startups will keep entering the market at a minimal cost. Durability could also be affected because today many Internet businesses are platforms or marketplaces. Why is that?
Venture capitalists fancy multi-sided marketplaces because of their network effects and leaner setup: Uber does not own any cars, Airbnb does not own any real estate, and Lending Club needs no branches. But a painful drawback of a multi-sided marketplace and its lauded network effect is that you need to continuously engage the multiple sides. In essence, Yahoo! is a two-sided marketplace that lost its demand-side, i.e. advertisers. The latter are increasingly allocating their marketing dollars to Facebook or Google. Given the strong advances of the on-demand and sharing economy we can expect an increasing number of similar cases.
Chatbots could well be one mega trend that can erode the market capitalization of tech giants.
6. Chat apps and Chatbots
"Hey chatbot, can you look me up the customer service number of Barclays corporate bank?"
Thought Google had the monopoly on search? Think again.
Google could be entirely side-lined because it seemingly has surrendered in the messaging war with no noteworthy chat app. It could still provide its powerful search technology as a service in the background ("Search as a Service") through an integration in say Facebook Messenger or Slack. Google's Voice search could compensate decreasing Google searches, but the implications for Google can be huge as it makes the gross of its revenue through search and display ads. You don't want to be chatbotted.
Besides search, think big industries as retail or financial services (remittance) becoming the slaves of chatbots. All of the sudden, Facebook's $19 billion WhatsApp acquisition in 2014 makes a whole lot more sense. We have already seen the dawn of conversational commerce (Asia clearly showing the way, again!) but still underestimate the paradigm shift in how consumers will interact with chatbots.
Uber, in its quest for world domination, is building integrations with anything it can find, including chat apps. It is now connected with Facebook Messenger, Microsoft Outlook, Slack, HipChat, Alexa, etc. These are all powerful growth accelerators - APIs are today's new borders.
7. Bubbles and valuation slap downs
2016 has so far seen an utterly dead IPO market in combination with serious ambiguity around privately-held companies such as Zenefits, Ubeam and Theranos. The latter is under investigation by federal prosecutors and by the SEC. Additionally, Forbes recently valued Theranos at $800 million while it was once valued at more than $9 billion. If Theranos would appear to be a largely worthless Theranothing, the ripple effect will affect all stakeholders.
Other recent events include:
- Square: IPO at half of its last private valuation
- Box: downround IPO
- Dropbox, Snapchat, MongoDB, Twilio: mutual funds such as Fidelity wrote down their positions
- Zenefits, Theranos, Lending Club: questionable governance
Salesforce founder Marc Benioff is urging private unicorns (Slack, Uber, Airbnb, etc.) to go public earlier - it's the brave and right thing to do. However and more realistically, this will only produce a home run for a select, elite group of venture capitalists. Most venture capitalists still need to turn paper profits into hard cash.
As venture capital dollars are becoming less liquid for entrepreneurs, the opposite is true for venture capital fundraising: the first quarter of 2016 was the biggest fundraising bonanza since 2000. Many funds want to build up a war chest to protect their portfolio during a downturn: Accel raised $2 billion, Founders Fund $1.3 billion, Lightspeed Venture Partners $1.2 billion, Battery Ventures $950 million, and Mary Meeker's own KPCB is currently raising $1.3 billion. Similar (but, well, more modest) trend across the pond.
Some clarity around unicorns would help all.
What did you think about Mary Meeker's Internet Trends 2016 Report? Which trends did I miss and do you expect to happen in 2016?
COO at HAAN
8 年As always many thanks for the top quality articles Federico
US Alliances Sales Leader at PwC
8 年Wow, fairly extensive coverage. Much more to come from p2p but the Uber model seems to work best with expensive assets, that have a low utilization rates (otherwise parked cars, extra bedrooms). These are d school learnings from the heavy equipment rentals in both agriculture and industrial applications. Also opportunities for sharing have to be easily delivered by the provider and at the right time and place that suits the consumer. That is the only reason why a uShip driver can tow a load cross country and charge basically their cost... they tripled up on loads and are on the way to a place they want to go anyway. Contract professional services or day labor might also work well in the P2P model for people who don't want a full time job due to limitations or other obligations. The uber tech should allow for efficient scheduling of workers and the contractors.
National Marketing & Business Development | Keynote Speaker | Specialty Coffee Association
8 年Smart and well-reasoned POV. Intrigued by the impact of the next frontier in UI/UX - voice.
I help organizations connect with people eager to make the world a better place.
8 年Good points. I think it's notable that Meeker focused on the impact that Millennials have had and will continue to make on our economy. While Millennials may seem like old news, developing insights into this audience is more important than ever. Business and technology (and advertising) is shaped by the consumer and what they value. There have been dramatic changes in values and attitudes in the last 15 years that are untapped opportunities.
This is a well thought pout response. I agree that growing income inequality with automation and the challenges faced by companies such as Uber with demand workers to wanting to earn employee status are only going to increase over the next 5 years and beyond.