Mobile is Eating the World

Posted in: Sector and Company Insights, Video Notes, Technology, industry, mobile, Tech, startup, Benedict Evans, Mobile is Eating the World, Smartphone

Benedict Evans of Andreessen Horowitz is one of the most knowledgeable people about the underlying trends in the tech industry. When the founder of Groupon tweets out a question, the inventor of the web browser steps in and Benedict gets CC'd.

Benedict recently published a presentation titled Mobile Eating the World on his blog. The video and slides are an excellent outlook on where mobile technology is going and you should take the time to watch. He has since given this presentation at the WSJD conference, a16z Tech Summit, DEMO2014 - as well as at Bloomberg The Year Head: 2015 summit - that together with the initial video provide the basis for this post. Below is a combined summary of both. You can follow @BenedictEvans on Twitter and subscribe to his weekly newsletter.

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Tech is selling to everyone

For the first time ever, tech is selling to everybody on earth. In the beginning, tech businesses sold mainframes to big companies, then mini computers to medium-sized companies, and then PCs to middle-class families. Each new technology wave grew the market for tech businesses. And now that the mobile wave has swelled, the tech industry is selling to everyone.

Growth of people online

At the height of the tech bubble, everyone was feeling optimistic. From 1995 to 2000, the number of people connected to the internet grew from 50 million to 400 million. At the time, this seemed impressive... But growth since the bubble has been much bigger.

In 2014, we have reached a major milestone: 3 billion people (and counting) have internet access. 2 billion people access the internet using smartphones. And that growth will continue to surge in the coming years. By 2020, an estimated 4 billion will have internet access, and almost all of them will be using a smartphone.

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The fundamental change happening here is not necessarily the gross number of people online, but the disappearance of people offline. The consumer PC industry at its height was just less than a billion consumers. The mobile industry by 2020 will likely have more than 4 billion consumers, as 80% of the world's adult population will have a smartphone.

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80% of the world’s adult population will have a supercomputer in their pocket.

Smartphones are supercomputers. These rectangular pieces of glass may have the functionality of a phone, but as we’re all well aware, smartphones are so much more than that. For context, the new iPhone 6 that Apple launched has a CPU with 600 times more transistors than Intel’s original Pentium had in 1995. The iPhone is smaller, slicker, it bends, and it has 600x more computing power.

During the iPhone 6 launch weekend, Apple sold enough iPhones with enough CPUs that together they had 25 times the computing power of all the computers on earth in 1995. In other words, everyone gets a pocket supercomputer.

Yes, Everyone.

In Sub-Saharan Africa, 70% of the population is now under cellular coverage. And in the next few years, most of those people will have access to 3G coverage. Even today, 40% of people in Sub-Saharan Africa already have cellular phones. Ericsson published an excellent Mobility Report on the region in June of this year. Yes Everyone Cropped More people in Sub-Saharan Africa have more access to a mobile phone network than electricity in their homes. The smartphone itself is not the limiting factor. Rather, it is data pricing and the ability to charge your phone. Smartphones are becoming more and more affordable, particularly the lower-end Android devices that are sweeping through the market. The next billion people to go online will not know what it was like to use a desktop computer or laptop. At a cost of $35, smartphones are affordable for everyone. $35 Android

This fundamentally changes the internet

We are now operating in a post-Netscape and post-PageRank world. The majority of our time spent online is in apps. More time is spent in apps than in browsing the web on desktop or mobile. We have moved on from a time where you just had a web browser, a mouse, and keyboard, and Google was the only way of finding things. The type of interactions on mobile are constantly changing, which means that companies dominant on the web may not necessarily be as dominant in mobile. 6 What’s more is that the mobile landscape is rapidly changing. Google and Apple are the two dominant players, and they continue to make fundamental changes to how we interact with our computing devices.

Complexity in ecosystems

In the past, we had Microsoft and a web browser, and things were fairly straightforward. But now that we have iOS and Android, things are bit more complex. For example:
  • Two-thirds of people in San Francisco have an iPhone, but in New Delhi it’s a very different split towards Android;
  • Two-thirds of AppStore revenue goes to iOS (very important for developers);
  • Global browsing usage is split 50-50 between iOS and Android; and
  • Apple has 10% of all the global smartphones being sold, while Android has 50%.
In other words, the ecosystem dynamics are no longer straightforward. Where you are and what you are doing matters a lot. In mobile, context is key.

Phones are more sophisticated than PCs

This is crucial. Smartphones are much more sophisticated than PCs because the number of sensors proliferating in smartphones profoundly change what is possible for a computer to do. There is an old saying in computer science: “A computer should never ask a question that it ought to be able to work out the answer to.” The more sensors you put into a device, the more things that a computer can know -- the more it can watch you -- the more it can understand everything that you’re doing. This means that the increase in opportunity that comes from mobile is significantly greater than just having two to three times the number of internet connected devices.

Mobile leverage

By 2020, there will be two to three times as many smartphones as there are PCs. But when considering the increase in opportunity that comes from that, we must factor in the mobile leverage. Smartphones are personal and frictionless, and they are taken everywhere. Smartphones know your location, have multiple cameras and sensors, and are now making your payments. So the real increase is not just 2-3x due to the proliferation of devices of devices, but may be as much as 10x due to increased sophistication. 7

Facebook and WhatsApp

Two good illustrations of this are Facebook’s $6.5 billion run-rate mobile ad business, which did not even exist two years ago. WhatsApp, which Facebook acquired, accounts for 7.2 trillion messages per year. In comparison, the global SMS industry accounts for 7.5 trillion message per year. So WhatsApp is roughly the size of global SMS, and WhatsApp is doing that with just 30 engineers! Over the past decade, there’s been a collapse in the costs of creating technology and building software, while combined with an explosion in the scale effects from building for mobile. Combine the two, and businesses can get to scale far more quickly.

The smartphone industry dwarfs PCs

When comparing the 4 billion smartphones replaced every 2 years with the 1.6 billion PCs replaced every 5 years, the smartphone industry is an order of magnitude bigger than PCs. 8 Which leads to a company like Apple -- the minority player in the smartphone business -- now generating almost as much revenue as the entire PC industry combined.

Mobile supply chain dominates all tech

The mobile industry is expanding outside of mobile to swallow up all other parts of tech. There is now an enormous supply chain producing over a billion units a year (and eventually two billion units). We have a flood of components -- small, cheap, low-powered, high-performance chips used to create smartphones. The same chips are also used in the biggest industrial-sized server farms. It turns out that the biggest costs of running a huge server farm full of computers are electricity and air conditioning, so chips that don’t use much power and don’t get too hot are quite useful.

Remaking other industries

Mobile is remaking the internet, and it’s remaking the tech industry; but one of the most interesting things about what is happening is the way that mobile is remaking other industries outside of tech.

Mobile dominates our attention

This chart contains data from the UK that shows the amount of time people are awake over the course of 24 hours. The green area at the top is for the time people are awake without doing anything digital; the purple area below is for the time people are doing something digital; and the grey area is for charging.

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As you can see, the purple area is in the majority. People are spending the majority of the time doing something digital. In one way or another, this means that for most of the day people are starring at a screen. Which leads us to a couple of other interesting insights.

Glass is eating the world

The global sales of LCD screens this year will be approximately 4 billion square feet. That is close to a square foot of screen sold for every adult on Earth.

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Smartphones and tablets are media platforms of choice

When teenagers in the UK were asked what they would miss the most, over 50% answered mobile, above traditional platforms like television, PCs, and game consoles. Newspapers are bucketed in “other” category.

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Communication is going pure digital

When teenagers were asked about how they communicate, they responded that they are communicating through messaging apps, social networks, and photo messaging. This is quite a contrast from adults, who spend over half of their communication time making calls or doing email.

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TV sets are the minority

TV sets, traditionally one of the oldest and most important forms of media, are now less than a quarter of all the screens used to watch video. Android and iOS account for almost half.

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Tech brands are huge

Google, Apple, Facebook and Amazon account for almost 20% of the value of the Top 100 global brands. All the technology brands combined make up 40% of the value.

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Tech outgrows tech

One of the most interesting observations is that we’re starting to see the technology outgrowing the technology industry itself. Up to this point, the tech industry has been relatively small. Google, Apple, Facebook and Amazon (otherwise known as “GAFA”) add up to about $300 billion in revenue. While this is much bigger than the $20 billion music industry, it’s still smaller than the TV business or advertising, and it’s significantly smaller than industries like Mobile, Apparel, or cars -- which are all over a trillion dollars.

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So the question is, how does tech break out? Does the technology industry become an industry at the trillion dollar global revenue scale or does it remain a second-tier industry forever?

The three phases of technology deployment

There are three ways for any new technology to get deployed into the world:

  1. Companies that make technology (startups);
  2. Companies that write a check to buy technology (startup customers, their acquirers); and
  3. Companies that are created with technology (Amazon, Airbnb, Uber/Lyft).

 Most companies fit into the second bucket. They write a check to buy technology, and the way they integrate it is representative as such. Their approach to technology is similar to how they see the IT person, as someone you call when something is broken. A person that is valued, but wouldn't be involved in the board room, let alone having the entire organization built around them. Real change comes from companies that are built around a fundamental understanding of what a new technology can do. 

Building companies around new technology

Amazon, Airbnb, Uber, Lyft are all companies that come to mind. Let's look at the media business as an example. In each new wave of technology throughout the history of media, there’s been a fundamentally new type of company that was built around it.

5 Technologies enabling the media companies you love:

  1. Railways and steam enabled companies like Pulitzer and Hearst
  2. Broadcast led to NBC
  3. Photography made glossy magazines like Life Magazine possible
  4. Color printing led to media companies like Conde Nast
  5. Internet and social brought us to the age of BuzzFeed (and listicles, of course.)

But all of these are still media businesses. These are not technology companies. Hearst is not in the trucking business, NBC is not a technology company, and BuzzFeed is fundamentally a media company. Amazon is another example. Amazon is a retailer that’s built around technology, but it’s not a tech company. Jeff Bezos has spent the last two decades pushing as hard as he can to convert all physical retail to eCommerce, and today Amazon accounts for approximately 1 percent of all retail in the US. The opportunity is still vast.

Mobile scale allows far more Amazons

The scale of mobile enables far more companies like Amazon to get started and capture their potential. Companies that use tech but are not themselves technology companies. In the past, tech was something that you bought and paid for. A company like Airbnb would have sold software to Hilton, Uber would have sold software to taxi companies, etc. But now, it’s possible for Uber or Airbnb to create their own businesses. They can go out and create a travel company or a transportation company that reshapes those industries by using software. This would not have been possible in the past.

When tech is fully adopted, it disappears

Another way of thinking about this is that when tech is fully adopted, it tends to disappear. The chart below shows the frequency of the word ‘railways’ in all the books in Google Books’ corpus since the year 1800. When railways first emerged and everyone was excited about them, the frequency of the word ‘railways’ grows, but when the railways are finished -- they work, they have been built -- people stop talking about them. The railways did not go away -- they’re still there -- it’s just that nobody thinks about them anymore.

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The same thing applies to steel, and many other enabling technologies that are all around us today. When steel was the ‘new’ thing, everybody talked about it. But today everything is a steel business. We don’t think of our offices as electricity companies, even though they’re full of electricity. The same thing happened with computerization -- now that every company has been computerized, nobody talks about it.

And the same thing is happening with software. Every company will be a software company. Software will fundamentally change every company, but it will change it by being absorbed and internalized, and thereby creating entirely new businesses that will change those industries.

42. 43. 44. Google Books

 Tech outgrows the tech industry

“The fundamental change is not so much that ‘software is eating the world’ but that technology is outgrowing the technology industry. Technology ceases to be something that other companies buy and it becomes something that entirely new companies are built with.”

-Benedict Evans

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