Benedict Evans on Tech 2021: Harder Problems and Regulation

This is a continuation of last week's post Benedict Evans' on Tech in 2021. That covered Covid Acceleration and the Great Unbundling. Today, the rest of his presentation.

Harder Problems

In the first 20 years of the internet, companies tackled the easy problems that could be almost entirely handled online: tickets, listings, price comparisons. Think Yelp or Expedia. Basically, they were selling data.

The second 20 years were about changing entire industries with software. Think Netflix, Uber, Airbnb. It is important to note that Uber didn't own cars, Airbnb didn't own rooms.

Now we are moving to combinations of physical infrastructure combined with software. For example, let's look at Tesla:

Tesla is the clear current leader in putting software and electronics into cars. It is valued as a tech company. In fact, it is valued at roughly the entire rest of the auto industry. But only about as much as Facebook, and way less than Apple, Google, or Amazon. This has been driven, at least partially, by the huge decline in battery costs (90% in a decade).

Keeping on the Tesla theme, or at least their CEO, SpaceX has cut launch costs by at least 5X into low earth orbit (satellites). In fact, Elon Musk, having noticed that the companies that owned the satellites that SpaceX was launching had higher margins than SpaceX, decided to get into the communication business, too. See my post What If It's Not 5G, But Satellites? Why should only his customers benefit from cheap launch costs?

There are all sorts of ways to measure the increasing importance of and interest in AI. But one is to look at the attendance at the leading AI conferences around the world. That's the graph on the left above. Or you can look at the results. None of the people in those photographs are real, they have all been generated by a machine learning system.

The world is splitting in two in some ways: China, and not China. The market dynamics are very different. For example, you've probably read about how many miles of high-speed rail China has built. It is all built with Chinese technology. But outside China, there are zero high-speed trains built by China. Closer to Cadence, China builds a tiny amount of semiconductor products and almost none at the high end. Exactly zero of these are sold outside the country. As Ben points out: 

iPhones are built in China but most of the components come from elsewhere.

But China is a huge market. As you can see from the above chart, there are more smartphone users in China than in the US, Canada, and Europe put together.

Chinese companies are also huge in e-commerce. Look at the bar on the left, Alibaba, and compare to the bar on the right, eBay.

In the same way that African countries went from no phones to mobile, bypassing the 20th-century technology of wired phones, China is going to electronic transactions, bypassing 20th-century credit cards. Last time I was in China I discovered that even vegetable sellers at the side of the road took electronic payments by smartphone. I've read, but haven't actually seen this, that beggars take electronic payment. Cash is simply dying out in China. In the US, too of course, but at a much slower rate. And credit cards are not going anywhere anytime, soon. By the way, some numbers you should know are that there are roughly 6B cellphones in the world (most of them smartphones, these days), there are 2B bank accounts, and there are 1B credit cards.

The End of the American Internet

What is Facebook's biggest market in terms of users? The USA right? Wrong, it is India.

Mobile data is mostly outside in China and India, too. I am not sure how fair this is since the US has a huge infrastructure of free Wi-Fi hotspots, and we all have Wi-Fi at home and in the office (remember offices?). Free Wi-Fi doesn't seem to be a thing in the rest of the world. Starbucks in China provides free Wi-Fi, but you can't use it unless you have a Chinese number for them to text a code to.

As you can see from the above chart, India (pink) has really taken off. It now has 450M smartphones (more than people in the US), 400M video viewers, 100M online shoppers, and 25M food delivery customers. It has the cheapest mobile data and the highest mobile data usage of anywhere in the world.

And how about Indonesia. You've probably never been there, and don't know much about it. It has the fourth-largest internet population on earth with over 200M smartphone users. That's not all that surprising since it is the fourth biggest country by population. Or Latin America, with a population of 350+M and 90% smartphone penetration.

As William Gibson famously said, "the future is already here, it's just not very evenly distributed".

Regulation

Every wave of technology changes the world...and gets regulated. Now it's technology's turn.

But there is no such thing as regulating technology in general. As a similar example, Ben pointed out that we don't actually regulate "cars". We regulate things like safety, emissions, speed limits, and so on.

One problem with regulation, in general, is that it is a regressive tax. The cost of compliance is roughly fixed, so for a very large company it is trivial, and for a small company, it is significant. So regulation (for example, GDPR) entrenches the incumbents and penalized new entrants, which is usually the opposite of what the politicians were hoping to achieve by regulation (but so many policies do that...insert your favorite one here). The chart above shows the cost of compliance for financial institutions (as a percentage of revenue, of course). For more on how GDPR has entrenched companies like Google and penalized European startups, see my post "GDPR Is an Enormous Regulatory Own Goal".

Airlines

Ben wrapped up his presentation by taking a look at airlines. In the early days, air travel was a luxury. One thing he pointed out was that the speeds have not changed since the first 707. But if you read Breakfast Bytes every day, you would already know that. See my post Why Don't Planes Obey Moore's Law? But one big thing has changed. In 1959, a roundtrip ticket from London to New York in economy class cost $4,100 (in today's dollars).

In the early days of planes and cars, for the first 50 years or so, the technology got shaken out and got a lot safer. In the second phase, we found out what happens when everyone has access to the technology: out-of-town big-box stores, fast-food drive-throughs, freeways, global tourism. Some of these are a mixed blessing, of course—just ask anyone who lives in Venice or Barcelona. But another thing Ben pointed out is that cars created more billionaires outside the auto industry than inside it.

Tech has also been around for about 50 years. It used to sell accounting systems to big companies, now it's just part of our everyday life. It is a systemically important part of society and it is making changes to how we do all sorts of things that are not really tech. You only have to think about how different lockdown would have been twenty years ago.

The Presentation

You can look at the presentation on Ben's website. By the way, you might think having read this post (and yesterday's) that you've already seen most of the presentation, so why bother to look at the whole thing. The presentation is 134 slides long, so I've just shown you a little bit of the content.

Or you can see Ben delivering it at the NASDAQ event Tech in 2021.

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