Every year Mary Meeker produces a big presentation on Internet Trends. And when I say big, I mean it. This year the presentation has 334 slides. In previous years, going back to 1995, Mary was a general partner at Kleiner Perkins, but she is now at her own growth fund Bond.

In the past, the focus has been on the US, with sections to take a look at the secondary markets of China and India. I would say that the focus this year is more on the rest of the world, especially China, since there seems to be more innovation going on there. In the US and Europe, the focus is on scale. There are two kinds of businesses with two different ways of supporting them as they scale.

• Purely online businesses such as Twitter, Facebook, and Google that means advertising-supported businesses. They are already at scale, of course. But that also is the same model for mobile games, some services, and many mobile publications. I'm reminded of Jeff Hammerbacher's quote. He was an early employee of Facebook. A few years ago, he thought that Silicon Valley was wasting its talent:

  The best minds of my generation are thinking about how to make people click ads. That sucks.

• Businesses with an offline component, such as Uber, DoorDash, and Bird scooters charge money...but not enough, so their real business today is to burn through investors capital and hope that at bigger scale they will be able to make money instead of losing even more.

There is definitely a transition going on in the US between the first type of online business, that is purely online, and the second, that has a physical component. Yelp just deals in restaurant recommendations, for example, and then you go there to eat; Uber Eats has to deliver your meal from those same restaurants, which is a lot harder to scale.

This post is the first of three covering Mary's report.

Internet Growth

The very basics of the internet are driven by the number of users and, especially outside the US, the growth of mobile. Both of the growth rates are slowing, with Internet growth down to 6% (from 7% last year). With over half the world on the net, growth is harder to find. Smartphone unit shipments are actually falling, with growth at about -4% versus 0% last year and positive since 2007 when the iPhone was announced (a peak of 75% per year-on-year in 2010). For the semiconductor industry it is still an enormous market, with about 1.5B smartphones shipped in 2018.

Over half of internet users are in Asia Pacific, with just 9% in North America. Asia Pacific has a lot more future growth too, since penetration just below half, compared to 90% in North America.

Those percentages when combined with population make China the #1 market with about 0.8B users, India #2 with about 0.5B, and US #3 with about 0.3B. Of course, the US is richer per capita, so when you get to dollars, things change a little. E-commerce growth is flat at about 12% (it's still growing, but the growth is not changing). Surprisingly, offline retail is also growing at 2% (versus 1.6% the year before). Those numbers shake out to show that e-commerce has climbed to 15% of retail from 14% last year. Despite Treasury Secretary Mnuchin's remarks last week that Amazon has shifted retail across the US, it is much more a long slow war of attrition. Brick and mortar retail are still 85% of the total. For example, Walmart had revenues of just over $500B in 2018, up from $485B the year before.

One area that Mary has pointed out year after year is that advertising spend does not match where people spend their time. In 2010, print used to be a lot too high, but mobile was ridiculously low. By 2018 the numbers were much more in line. See the graph below. The left-hand pink bar is the percentage of time spent on the medium, and the right-hand blue bar is the percentage of advertising dollars going there. A few years ago, she was almost pleading with people to spend more money on mobile advertising since there was low-hanging fruit for the picking.

In 2018, in the US, Google and Facebook lead with Google up 1.4X and Facebook up 1.9X. But others are starting to eat away with Amazon/Twitter/Snap/Pinterest growing 2.6X (on a much smaller base). And although Mary said nothing about it, I'd watch Snapchat's average age vs Facebook.

Increasingly, efficient marketing is moving towards the freemium model, where an attractive service is given away for free with the aim to convert many of those users to paying customers. Advertising to acquire customers is getting increasingly expensive and ineffective (and any online business is about balancing CAC, customer acquisition costs, against LTV, lifetime value, and making sure the second is greater than the first). For example, Eric Yuan, CEO of video service Zoom, said:

We really want to get customers to test our product... It’s really hard to get customers to try Zoom without a freemium product. We make our freemium product work so well that if they like our product, very soon they are going to pay for the subscription. Our NPS is in the 67-69 range versus our peers in the 20s. We do not want to spend money on the marketing side to generate leads.

NPS stands for "net promoter score" and is a standardized customer satisfaction metric measured from 0-10.

People spend a lot of time with digital media, and growth is still accelerating. In the US it increased by 7% (versus 5% the previous year) to 6.3 hours per day on average, of which 3.6 hours on mobile. Sometime around now, mobile usage will overtake TV usage in minutes per day (this is non-deduped data, since many of us use our phone while watching TV so are using both at the same time). Digital video in US has now reached 28% of all video watching (it was 4% in 2010), with TV down to 72%.

I would guess that if the average American spends 3.6 hours on their smartphones per day, then millennials must spend significantly more. Mary's presentation doesn't break anything out by age, but I suspect that usage by age group could potentially be very different, not just in terms of hours but also in terms of which apps capture their attention.

Here are the most used platforms. The percentage measures the percentage of users using the platform at least once per day, so they add up to more than 100% since many people use more than one of them daily. The slide says "worldwide" but I'm pretty sure this is US, since Baidu, QQ, Taobao, and the rest don't appear:

• Facebook 30%
• YouTube 27% (owned by Google)
• WhatsApp 25% (owned by FB)
• WeChat 23% (owned by Tencent)
• Instagram 19% (owned by FB)
• Facebook Messenger 15% (owned by FB obviously)
• Twitter 11%
• Snapchat 5%
• Pinterest 4%
• Twitch 2%

Podcasts are also growing fast, doubling in the last four years to 70M listeners in the US. The top podcasts are a pretty eclectic mixture (these downloads may vary depending on the source):

1. The Daily (New York Times)
2. The Joe Rogan Experience
3. Stuff You Should Know (iHeartMedia)
4. Fresh Air (NPR)
5. The Dave Ramsay Show

Part 2

Part 2 will be tomorrow on Breakfast Bytes.

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