Wednesday, June 01, 2016

15 Year Anniversaries

Today brings us to an anniversary of sorts.  15 years ago, right near the bottom of a massive bubble, Mary Meeker provided technology investors and pundits with an efficient and very digestible 25 slides.  It’s fascinating to look back and see how much has changed:  

Every year since that first report we, the minions of the Internet, have been allowed to view Mary’s analysis of technology trends.  This year the title of her presentation is “Interent Trends 2016” and it’s a whopping 213 pages. I am going through it right now so while I am doing this I'll pitch out a few thoughts. 

If you are interested in following along, the 2016 report can be found here:

Starting off, some context is probably in order. In the 2001 report Mary estimated that there were around 300 million Internet users  This, at the time, was about 5% of the world’s population and one-third the number of people using cell phones.  Today, the estimated number of Internet users is over 3 billion or, if you wish, 42% of the world uses the web. China and India now have the largest base of users - India’s numbers are growing rapidly.  The USA is number three on the user list.  

In the beginning PCs were the primary vehicle for Internet access. From a relatively non-existent level in 2001 mobile access to the Intenet went through a dynamic and rapid phase of adoption.  Most of us have a smartphone and we use it to access the Internet on a daily basis. 

Currently it is clear, and has been for more than just the past couple of years, that the growth rate of smartphone sales is slowing.  At the same time the cost of a smartphone has come under pressure. Average selling prices for Android smartphones have dropped from $403 in 2008 to half that level.  The report points out that Android smartphones held 81% market share at the end of 2015.  Market share for iOS devices during the same period, 2008 to 2016, went from 14% to 16%.  

This pressure has caused tremendous angst for those that are in the smartphone food chain.  Apple’s woes are well documented as are the weak start-of-year conditions in China. I don’t want to beat a dead horse but in my last blog (see below) I mentioned a quote from Mentor CEO Wally Rhines to highlight this phenomena:  

"Until recently, the emergence and rapid growth of smart phones kept the semiconductor market growing, despite some dramatic changes in leadership among the chip providers. But the growth to enormous volumes of cell phone units, the changes in handset and service provider models (like the Xiaomi low-hardware margin approach) and the relative stabilization of standards has reduced the number of suppliers as well as the chip prices. The same thing happened in the PC industry, as the industry consolidated from more than 100 manufacturers of IBM-compatible PCs. While temporarily painful, those remaining companies become very efficient. And, as always, semiconductor companies can prepare for the next great wave of applications that will drive billion-unit volumes of products that are yet to be identified and developed."   

Such is the way in the smartphone business…..

I follow, er study, economics each and every day. I have been doing this since my career started back in 1983 at Merrill Lynch. One thing I have learned early in my career is that you should never trust a technology analyst to tell you what is going to happen in the economy. This comment is directed at the sections in the report detailing Global Macro Trends. Yes, Global Real GDP Growth has been slowing.  And yes, China’s excessive spending, the last 6 years being greater than the last 30, is problematic. Yes, interest rates are at historic lows. Yes, rates are low because growth is slow and monetary authorities have been desperately trying to stimulate some activity (or, extinguish fires). Yes, commodity prices have plunged because of weak demand and overcapacity.  Yes, the world’s population growth is slowing, aging and living longer.

The negatives are known by pretty much everyone with half a brain. 

Notable to me is how these macroeconomic factors, when they were in just a bit more of a positive mode, were the ones that were supposed to drive further incremental growth. Notable, at least to me, is how these negatives are interpreted as a “once-in-a-generation” phenomena - never to occur again. 

Hmmm….  I better get away from this section because I don’t want to go into a long-winded diatribe about forecasting and how general observations can become a big problem for investors. I am just going to say that I don’t like using the phrase “once-in-a-generation”.  Age doesn’t matter to me so I don’t know what constitutes a generation. <sarcasm on>  

Admittedly, Wall Street seems to be good at coining some trends so a bit of the research might be worth a view.  Earlier this year I thought this one was pretty good on Millenials:

Yes, there's a section on Millenials and their preferences in Mary's report.


Next section(s)…..  Oh boy, advertising followed by retail.  I could spend all day wrapping words around these two areas but the first word that comes to mind for me is “eyeballs.”  Pretty soon the word won’t be eyeballs it will be "voice."  Yes, voice is going to make a comeback - IA (Intelligent Agents) are springing up everywhere and this is just the beginning. Just ask Alexa, Cortana, Siri or Google Voice. They know.  


There’s much more:  Platforms (think Facebook, SnapChat, Instagram, etc), video (including live streaming) and various forms of messaging are noted.  

There are slides that talk about Autonomous vehicles, Uber, China (668 million Internet users), the biggest Internet companies (Amazon, Google, Facebook, Microsoft, Baidu, Alibaba, Tencent, to name a few), M&A by non-tech companies, technology financing (bullish, go figure) Data Platforms, Data Privacy, Security, a bit on the Cloud and then back to Privacy.


I am getting bleary eyed watching these slides roll forward.  


No mention of the IoT, IoE, or the advances in medical and education platforms.  To be honest, I don’t find that disappointing. Actually, it's par for the course.  Biggest trends ever getting totally (almost)  ignored in a 213 page State of the Internet report.  <facepalm>

If you choose to view, here’s the link again:  

Your mileage may vary.


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