Turbo’s Take: Mary Meeker Internet Trends 2019

Mary Meeker is speaking again at this year’s Code Conference, and delivering her always highly-anticipated Internet Trends Report.

Following is a CC from Vox’s highlights.

• Some 51 percent of the world — 3.8 billion people — were internet users last year, up from 49 percent (3.6 billion) in 2017. Growth slowed to about 6 percent in 2018 because so many people have come online that new users are harder to come by. Sales of smartphones — which are the primary internet access point for many people across the globe — are declining as much of the world that is going to be online already is.
• As of last week, seven out of 10 of the world’s most valuable companies by market cap are tech companies, with only Berkshire Hathaway, Visa, and Johnson & Johnson making the Top 10 as non-tech companies:

1. Microsoft
2. Amazon
3. Apple
4. Alphabet
5. Berkshire Hathaway
6. Facebook
7. Alibaba
8. Tencent
9. Visa
10. Johnson & Johnson

• E-commerce is now 15 percent of retail sales. Its growth has slowed — up 12.4 percent in Q1 compared with a year earlier — but still towers over growth in regular retail, which was just 2 percent in Q1.
• Internet ad spending accelerated in the US, up 22 percent in 2018. Most of the spending is still on Google and Facebook, but companies like Amazon and Twitter are getting a growing share. Some 62 percent of all digital display ad buying is for programmatic ads, which will continue to grow.
• Customer acquisition costs — the marketing spending necessary to attract each new customer — is going up. That’s unsustainable because in some cases it surpasses the long-term revenue those customers will bring. Meeker suggests cheaper ways to acquire customers, like free trials and unpaid tiers.
• There are a number of problems ahead for targeted advertising, including GDPR impact and other regulation, as well as pushes for more privacy from hardware and software companies like Apple and Facebook.
• Americans are spending more time with digital media than ever: 6.3 hours a day in 2018, up 7 percent from the year before. Most of that growth is coming from mobile and other connected devices, while time spent on computers declines. People are also getting more concerned about time spent online, as more than a quarter of US adults say they’re “almost constantly online.”
• Innovation at tech companies outside the US has remained robust. Popular areas include fulfillment, delivery, and payments.
• Images are increasingly the means by which people communicate, as technology developments like faster wifi and better phone cameras have encouraged a surge in image taking. More than 50 percent of Twitter impressions now involve posts with images, video or other media; Twitter used to be text-only.
• The number of interactive gamers worldwide grew 6 percent to 2.4 billion people last year, as interactive games like Fortnite become the new social media for certain people. The number of people who watch those games — rather than participate — is swelling, too.
• As privacy becomes a bigger selling point, expect more options to make your online communications safe. In Q1, 87 percent of global web traffic was encrypted, up from 53 percent three years ago.
• The internet will become more of a cesspool: Getting rid of problematic content becomes more difficult on a large scale, and the very nature of internet communication allows that content to be amplified much more than before. Some issues: 42 percent of US teens have experienced offensive name-calling online, terrorists are being radicalized on sites like YouTube, and social media has encouraged increased political polarization.
• Of the top 25 most valuable tech companies, 60 percent were founded by first- or second-generation immigrants. They employed 1.9 million people last year. New stricter immigration laws could negatively impact the tech industry and perhaps prevent our next Elon Musk from getting to the US.
• Health care is steadily becoming more digitized. Expect more telemedicine and on-demand consultations.

My takeaways:

• There’s lots of confusion ahead for advertising, advertisers, and advertisees. Who’s going to “own” the advertising audience moving forward with a battle royale going on between handset and other device makers, developers, third-party advertising entities, e-retailers and advertising disrupters, particularly as issues of accountability, brand safety, and privacy/data regulation get fought over. And in the U.S., expect to see more First Amendment issues get challenged.
• Mobile has become the killer app, for both advertising and, ergo, for content consumption. While broadcast TV will continue to thrive if, for no other reason, real-time sporting events, increasingly the eyeballs that matter (Generations Y, Z, and beyond…including millennials) will be watching content on something other than a TV via a mechanism that is IP-based and on the move. Agencies, advertisers, platforms, and all points beyond must adjust if they want to stay relevant.
• E-payments are (including mobile) are, in my estimation, still a killer app that are ridiculously underserved and undertapped in the U.S. Go to China and the whole ecosystem is about WeChat mobile payments, from street vendors to Louis Vutton, and we’re still fiddling around with credit cards in the West. Expect Facebook’s play here to challenge the banking and payment status quo, and possibly even the notion of nation-state fiat currency. They have 2+ billion potential customers. And you thought the U.S. Congress wasn’t just ready for dealing with data legislation?
• Encryption as a panacea for our privacy ills will have to be counterbalanced by the needs of the national security and sigint apparati around the globe. Don’t expect the nation state to go dark on Facebook Messenger, WhatsApp, etc. without a fight (and who knows, maybe the encryption’s already on, but so are the virtual microphones). Remember US v Apple iPhone Encryption when President Obama was still president? Yeah, that.
• Re: Data and antitrust legislation, this is one to keep an eye on. The U.S. so far has outsourced its privacy legislation to the EU vis a vis GDPR (save for some state-based privacy legislative initiatives from the likes of California), and so far as antitrust and tech giants are concerned, there’s such a rich target set and so little resources. Regulators are going to have to pick their battles selectively, and even then, know that their efforts could put giant balls and chains around the ankles of the very innovation they would argue keep us apace on China and ROW. Also, as IBM’s Ginni Rometty says, “Data is the next natural resource.” If China generates data like oil spouting out of the original Spindletop, and the U.S./Europe stand around twiddling their thumbs and capping their virtual wells, the West could rapidly find itself at a competitive disadvantage in the Great AI Wars of the 21st Century, if not outright handicapped.
• At the same time, we won’t be able to completely tariff our way forward (with China and Huawei, or anybody else). Uncle Sam and the academy need to continue to focus on what made Silicon Valley (and, ergo, America) great in the first place: The embrace of intellectual and academic freedom and research, smart immigration policies that encourage the best and the brightest to come to America…and (should they so choose) stay; forward looking investments and pure R&D from Uncle Sam (not unlike the Space Race, which led to so many of the innovations we enjoy today)…and, you know, rational, enlightened thinking about the future of technology and the positive (and negative) impacts it can have.

I reserve the right to have further reactions as I more fully absorb the entirety of Meeker’s always fascinating and helpful report.

Apple’s Supply Chain, RapidAPI’s Boost

So what happens if this U.S.-China trade war gets outta hand? What, in particular, happens to Apple, whose supply chain purposely extends throughout the Middle Kingdom?

Bloomberg is reporting that Apple has a fallback plan, that its primary manufacturing partner, Foxconn (also known as Hon Hai Precision Industry Co. Ltd), "has enough capacity to make all iPhones bound for the U.S. outside of China, if necessary."

“Twenty-five percent of our production capacity is outside of China and we can help Apple respond to its needs in the U.S. market,” said [Foxconn semiconductor division chief, Young] Liu, adding that investments are now being made in India for Apple. “We have enough capacity to meet Apple’s demand."

According to the report, Apple has not given Foxconn instructions to move production out of China…yet.

Foxconn is now running quality tests for the iPhone Xr series there and plans to begin mass production at a facility in the suburbs of Chennai. Older models are already assembled at a Wistron plant in Bangalore.

Foxconn had also committed to building a 13,000-worker facility in Wisconsin, but the fate of that plant seems to have been up and down. But Foxconn executives maintain the employment goal remains, and that "construction remains on schedule and that it will hire as many as 2,000 Americans by the end of 2020."

Meanwhile, the tech consolidation buying spree continues.

Intel is acquiring Barefoot Networks, which specializes in programmable networking chips, for $155M. Interesting to note that Barefoot’s fund raises amounted to $155M from a variety of firms, including Chinese Internet giants Tencent and Alibaba.

TechCrunch provides a backgrounder:

Based in Santa Clara, Calif., Barefoot Networks was launched from stealth in late 2016 by Dr. Craig Barratt, a former Stanford University professor whose work was critical to the development of the networking architectures that allowed Alphabet, Facebook and others to operate at the massive scale they now have.

As these companies demanded more customized hardware ranging from chipsets to enable their various machine learning algorithms to manage and monitor content (and win Go games), to the servers and routers that they’ve put up in their own internal networks Barratt realized they’d need chipsets that they could modify.

With the acquisition, Intel adds a core knowledge set around p4-programmable high speed data paths, switch silicon development, P4 compilers, drivers oftware, network telemetry and computational networking.

It’s not just speed in the chips that will transform cloud-based AI…it’s speed in the networking infrastructure and at the edge of the network.

H&R Block is acquiring Toronto-based Wave Financial, a financial planning platform for small business owners (surely you’ve seen their TV spots!) for $537 million CAD (Canadian dollars).

The acquisition, which is still subject to regulatory approval and closing conditions, expands H&R Block’s product and client portfolio with Wave’s accounting, invoicing, payroll, and payments software solutions and will also see Wave adding H&R Block tax solutions to its suite of products.

In 2014, Wave reached over 2.5 million customers worldwide, and launched its Invoice feature the following year. Last year, the company surpassed 3.5 million customers, and launched Wave Plus, launching its Receipts and Payments features the following year.

Wave provides its software for free to more than four million customers in 200 countries worldwide. Revenue is generated from Wave’s paid financial services, including Payments and Payroll by Wave. The company’s general software is free, rather than “freemium” model, meaning that its tools can be used without tiers or limitations.

Upon closing, writes BetaKit, the deal "would make one of the largest ever Canadian tech exits."

And if you’re a developer, this one’s for you: RapidAPI, which devs used to search for, pay, and connect to public APIs, has closed a Series B round of $25 million.

The funding comes at a time of decent growth for the startup. The company now counts 10,000 APIs in its marketplace, which it estimates covers 33% of all publicly available APIs globally (leaving lots of room still to grow); with developers using RapidAPI, now standing at 1 million, who now collectively make 500 billion API calls each month from a wide variety of companies big and small, including Microsoft, SendGrid, Nexmo, Telesign, Google, Skyscanner and Crunchbase.

TechCrunch reports that the funding will help bolster development of its tools, including RapidAPI for Teams, "which will help them not only manage their use of public APIs but also organse and use their own internal APIs and microservices.

If you build it (your API), they will come…but they have to find it first!

RapidAPI currently has 1 million developers and counting…I would expect somebody will take them off the board and soon. Microsoft may have first right of refusal, as RapidAPI’s Series B was led by the company’s venture arm, M12.