For the last five or six years, Benedict Evans worked at Andreesen-Horowitz (a16z) and would do a big presentation on the state and future of the internet at the end of each year. He recently left a16z to return to the UK (he's English) and so his presentation this year was delayed and given at Davos. His own summary of the presentation is:

Every year, I produce a big presentation digging into macro and strategic trends in the tech industry. This year, "Standing on the shoulders of giants" looks at what it means that four billion people have a smartphone; we connected everyone, and now we wonder what the Next Big Thing is, but meanwhile, connecting everyone means we connected all the problems. Tech is becoming a regulated industry, but we don’t really know what that will mean. I gave this presentation at an event in Davos in January 2020, in partnership with Nasdaq and Protocol.

The presentation is 130 slides long, so this post (and the one tomorrow) is my attempt to focus on a few highlights and give you enough of a teaser that you go and look at the original presentation.

Standing on the Shoulders of Giants

The S-curve going from stupid to exciting (during growth phase) to boring (when it flattens) has been the model for high-tech adoption for over 50 years. You've probably seen those curves showing different markets, or how much faster smartphones were adopted than PCs, and how much faster PCs were adopted than TVs. So now that smartphones have reached the boring phase, what is the next big thing?

This forms the backbone of Ben's presentation, along with a third one that is has been rumbling in the background over the last year or so:

• What happens when everyone is online? (we are pretty much there)
• What are the next S-curves?
• Regulation and public policy

What Happens When Everyone Is Online?

Ecommerce is big and $500B is a big number. But it is still "only" 15% of addressable retail. And in the small print, it makes it clear that the red line in the above graph excludes cars, car-parts, gasoline, and restaurants & bars. You probably also assume that the US is a leader in online retail, we are all Prime members, right? But the UK, Scandinavia, and especially China have much bigger shares of retail online.

It is not all Amazon either (although Amazon continues to grow at 30% per year). There are literally hundreds of direct-to-consumer (d2c) brands out there. Just listen to any podcast or look in your Facebook feed to see many of them. There are also huge new e-commerce platforms underlying a lot of this: Shopify is valued at $46B (logistics, based on $60B of sales in 2019) and Stripe at $35B (payment).

One problem with d2c businesses is that they are not very defensible. As Ben puts it in the presentation:

A vacuum-packed mattress was a brilliant idea...until everyone else did it. There are now 175 online mattress companies.

One theme through the presentation is: "Is that a tech company? Or is it a mattress company with a website?"

Next, the presentation moves on to TV. YouTube launched in 2004, and a decade and a half later TV finally unlocked. The annual decrease in pay-TV subscriptions (cable, not streaming) is now decreasing at about 7% per year. The US cord-cutting percentage, at nearly 20%, is already larger than the e-commerce share of retail. And it has mostly happened in the last five years. US teens don't watch much TV at all, their viewing hours are down by nearly a half in just the last three years.

You can't have failed to notice that the traditional TV companies (including cable like HBO) are not the only game in town. One-third of 2019 content spending came from the streaming companies, notably Netflix, Amazon, and Apple (still small). But it is a content war, with subscriptions for cable down 20%, teen viewing down 50%, show count doubling, costs soaring...and unclear exactly what the new equilibrium will look like. There are also new forms of video emerging, such as Twitch (acquired in 2014 by Amazon) streaming live games and continuing to grow fast. Netflix is already the UK's biggest TV channel (measured in viewing hours by 18-34s in 2018), bigger than ITV or the BBC (but still smaller than YouTube viewing hours).

Jim Barksdale, once CEO of Netscape, said, "There are two ways you can make money in business, you can bundle, or you can unbundle." So right now, we are in the middle of the great unbundling, especially of big cable packages. Everyone wants to unbundle and go direct, Disney being the most obvious example, but also all those d2c retail companies. But aggregators exist for a reason since there can only be so many brand relationships (in particular, you can only have a limited number of streaming service subscriptions). So "Is that a tech company? Or is it a TV company using a new channel?"

The Next S-Curve

There are already 4B smartphones, an order of magnitude or two more than PCs. The global population over age 14 is a little over 5B. So there is not going to be a generational change of scale for the next big thing,

Once you've connected everyone, how do you create a bigger market?

There are lots of new things going on, but unclear which will break out and create huge new world-changing markets. A lot of innovation is going on in tech:

• "machine learning is the new database"
• "crypto is the new open source?"
• "AR is the next smartphone?"

But that's not the only focus inside tech because...regulation. But we'll look at what Ben said about that tomorrow.

Learn More

Benedict Evans produces a weekly newsletter, which goes out to 130,000 subscribers (I'm jealous). I highly recommend it. You can sign up at his website. Or you can download the pdf of the presentation.

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