25 New systems, not just Mobile Is Eating the World (2016)

MOBILE ATE THE WORLD BENEDICT EVANS March 2016 @benedictevans

The universal technology product

3 Thirty years of the PC From 9m units to 300m+ in three decades Source: Gartner, a16z 0.0 0.1 0.2 0.3 0.4 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Annual unit sales (bn)

4 Overtaken by a new ecosystem Fundamental shift in scale - from 300m+ PC units a year to 1.5bn smartphones and growing Source: Apple, Google, Gartner, a16z 0.0 0.5 1.0 1.5 2.0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Annual unit sales (bn) PCs iOS & Android smartphones

5 Mobile is the new scale Mobile was always bigger than PCs, but separate, and not really part of the computing market. Smartphones broke down that wall Source: Apple, Google, Nokia, Gartner, a16z 0.0 0.5 1.0 1.5 2.0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Annual unit sales (bn) PCs Mobile phones iOS & Android smartphones

6 (And tablets add a quarter-billion more) Source: Apple, Google, Nokia, Gartner, a16z 0.0 0.5 1.0 1.5 2.0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Annual unit sales (bn) Tablets PCs Mobile phones iOS & Android smartphones

7 3bn modern computers There are 3bn iOS and Android computers on earth and 2.5bn smartphones Source: Apple, Google, Gartner, a16z 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Estimated global install base (bn) PCs iOS & Android

8 0 1 2 3 4 5 6 7 8 9 Population Population over 16 Mobile users Smartphones PCs Global population (bn) Growth to 2020 2015 The world in 2020 By 2020 perhaps 5bn people on earth will have a smartphone Source: World Bank, GSMA, Apple, Google, a16z

9 An iPhone 6 CPU has 625 times more transistors than a 1995 Pentium. iPhone 6 launch weekend: Apple sold ~25x more CPU transistors than were in all the PCs on Earth in 1995. Everyone gets a pocket supercomputer. Source: Apple, Intel, a16z

10 Everyone gets a pocket supercomputer Mobile takes computing to people hardly touched by technology before 10 Source: Alan Knott-Craig

11 Yes, everyone Networks almost everywhere, and the entry price for Android is now well under $50 Source: Ericsson, McKinsey, GSMA 0% 10% 20% 30% 40% 50% 60% 70% 80% Cellular coverage 3G coverage 3G coverage 2019e Improved water Grid electricity Mobile users Sub-Saharan Africa population coverage, 2014

12 0% 5% 10% 15% 20% 25% Least developed countries Developing Developed World 500MB mobile data as % per capita gross national income* 2013 2014 Though data is still expensive at the margin Access to affordable data (and power) is the largest remaining barrier for new users, not the price of the device * Prepaid handset-based plan. Source: ITU

13 Every corporation ‘Every home and every desk’ Every pocket The first universal tech product Mobile completes a journey from one computer on earth to a computer in every pocket

The new ecosystem

15 Mainframes 100k Workstations 10m PCs 1.5bn Mobile 5bn+ Mobile is the new tech ecosystem Tech moves forward by going from one ecosystem to the next, and each new ecosystem is a change in scale. Mobile has the scale of everyone on earth Source: a16z

16 0.0 0.5 1.0 1.5 2.0 Games consoles Cameras TVs PCs Smartphones Mobile phones Unit sales, 2015e (bn) Smartphones have unique scale for tech The first tech product to be bought by almost everyone on earth, every 2-3 years Source: CIPA, Displaysearch, Gartner, companies, a16z

17 Tech moves in ecosystems. Each ecosystem is the centre of innovation and investment for that generation. The ‘PC’ ecosystem played that role for 30 years: now the ‘mobile’ ecosystem takes over.

18 What does ‘mobile’ mean? These are ‘PCs’, but not ‘personal computers’: they’re the product of the PC ecosystem. The same proliferation will happen around ‘mobile’ Source: Google18

19 Hardware innovation centres on ARM and smartphones Software shifts to a native touch UX Secure, sandboxed software model iOS & Android operating systems ‘Mobile’ is an ecosystem, not a screen size The change isn’t screen size or keyboards - those are all just options. The change is the shift to a new ecosystem with 10x the scale

20 ‘Tablets’ are PCs, but from the new ecosystem Tablets (and Chromebooks) come from the mobile ecosystem but address ‘personal computer’ use cases Source: IDC, Gartner, Barclays Capital 0 25 50 75 100 125 150 175 Mar 1995 Mar 1997 Mar 1999 Mar 2001 Mar 2003 Mar 2005 Mar 2007 Mar 2009 Mar 2011 Mar 2013 Global quarterly unit sales (m) Tablets Laptops Desktops

21 A drone is a smartphone that flies Most of the intelligent components of a drone come from the smartphone ecosystem ‘Mobile’ components for different use cases Source: Airware21

22 Ecosystems are Lego for technology ‘Mobile’ Lego overtakes ‘PC’ Lego Smartphone components enable a ’Cambrian Explosion’ of new products Firehose of smartphone components Contract manufacturers assemble those components into anything Tablets Internet of Things, satellites, wearables, connected cars, connected home, drones etc. Virtual Reality Firehose of products Hardware tech for almost anything is on the shelf The challenge is vision and route to market

23 Our grandparents could count their electric motors. Our parents could count the things they owned with a chip inside. We can count our connected devices. Our children…

24 ‘A computer shouldn’t ask anything it could work out’ Sensors profoundly change what a computer can know Every new sensor creates new businesses Sensors everywhere, data everywhere Smartphone components and sensors drive a step change in data

25 New systems, not just new products Ubiquitous connectivity and sensors enable fundamentally new approaches Operating efficiency Know exactly how the product is operating all the time Product design Knowing exactly how a product operates enables new designs System design Understanding everything in a system enables a new system

26 Redesigning the system: containerisation Unload the ship faster, then build 10x bigger ships, then move the supply chain to China Source: Maersk26

27 Redesigning the car? As technology remakes what cars are, how far can tech companies take advantage? * Mercedes, BMW, Audi, Lexus. Source: Companies, a16z Mobile phones PCs TVs Cars Luxury cars* iPhones 0 200 400 600 800 1,000 1,200 1,400 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 Annualrevenue($bn) Annual unit sales (bn) Global market scale, 2014 (bubble size = install base)

28 Fundamental reduction in mechanical complexity Different supply chain, manufacturing structure Change who can make cars, and how Electric Each city will reach an different equilibrium point Fewer cars Who owns on-demand fleets? What kinds of cars do they choose? On-demand Rocket fuel for on-demand – far more supply, lower costs (driver, insurance, parking) New vehicle types, ownership structures – and new real estate models Autonomous Smartphones with wheels Three ways to think about cars, if you’re a software company

29 'Driverless cars' = 'horseless carriages' Electricity and autonomy will allow fundamental redesign of vehicles 29 Source: Daimler29

30 Redesigning the system How will the end of manual driving (and parking) change the urban landscape? “It was easy to predict mass car ownership, but hard to predict Walmart” 30 Source: Walmart

New productivity

32 We all know mobile is bigger than PCs, just as PCs were bigger than mainframes or workstations. Eventually, PCs supplanted those. How does mobile supplant PCs? (Or is computing progress over?)

33 Computing in 1960 Everyone in this picture is an Excel cell – the building is a spreadsheet 33

34 A tool for real work: the Friden Adding Machine “Electronic data processing systems did not come about for the purpose of replacing any type of office equipment. There will always be a place for the machine based on mechanical and electro-mechanical principles.” Source: National Office Machine Dealers Association, 1957

35 Then they bought a mainframe New tools change what work means Source: IBM35

36 The future comes looking like something you can’t use for real work. These days it often looks like a toy for rich hipsters. But the toy gets better. And the work changes.

37 The toy gets better… “You can’t do CAD on (DOS, Windows, Web, Mobile)” 37 Source: Onshape

38 …and matches or beats the old ways “You can’t do video on (PCs, Windows, Web)” 38 Source: Frame.io

39 And work changes. A thousand VPs today… When we say ‘real work’, do we mean what the business needs, or the tools we have now? Download data from business systems - SAP/Salesforce/Oracle (or a really big Excel file) Make charts in Excel, copy charts into PowerPoint & write bullets Email PPT to 20 stakeholders “I need a PC, mouse and keyboard to do my job” But actually, your job isn’t to make PowerPoints And that PowerPoint should be a SaaS dashboard with live data and a Slack channel

40 Tools follow workflows, then reshape them First you make the new tools fit into the old way of working. Over time, the work changes to fit the new tools 10x better data 10x less typing 10x better data 10x less typing

41 Cloud, AI and mobile devices drive new tools and new workflows. Unbundling & rebundling of business tasks. New connective tissue for the enterprise.

The internet moves to mobile

43 0 50 100 150 200 250 300 350 400 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 US online revenues ($bn, 2014 dollars) So, the internet happened… US ecommerce + online ad revenue has increased ~15x since 1999 Source: US Census Bureau, IAB/PwC, a16z Online advertising Ecommerce

44 Media and attention moved… Global Internet advertising is now a quarter of the total advertising market Source: Zenith, a16z 0 10 20 30 40 50 60 70 80 90 Annual ad spending, 1980-2014 ($bn, 2014 dollars) Internet Print TV Other North America Western Europe APAC CEE Latam MENA

45 0% 25% 50% 75% 100% 2013 2014 2015 ‘What’s your most important device for accessing the internet?’ (UK, summer 2015) Desktop Laptop Tablet Smartphone And now we move to mobile Devices based on the new ecosystem are already overtaking the old one Source: Ofcom

46 Half of Facebook’s base is mobile-only 52% of Facebook's 1.6bn monthly active users only use it on mobile Source: Facebook, a16z 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 Mar 2012 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 Mar 2015 Sep 2015 Facebook MAUs by platform (bn) Mobile only Mobile & desktop Desktop only

47 0% 10% 20% 30% 40% 50% 60% 2010 2011 2012 2013 2014 2015 Mobile share of US ‘Black Friday’ ecommerce Share of traffic Share of sales Ecommerce is shifting Mobile can now be over half of ecommerce traffic and a third of revenue Source: IBM

48 Only at home 8% Mainly at home 16% Both at home and outside 66% Mainly out of home 9% Only out of home 1% Where do you use the internet on your phone? (UK, 2014) Mobile doesn’t mean ‘mobile’ People don’t use the internet on their phone when they’re mobile – they use it everywhere 40-50% of all smartphone traffic happens on wifi* Source: Ofcom, *Facebook, *Cisco

49 Smartphones, 19% Tablets, 22% PCs, 27% Consoles, 3% STBs, 18% Streaming boxes, 8% BBC video requests by platform, December 2015 ‘Mobile’ is taking over the living-room Smartphones and tablets have close to half of streaming viewing, and growing Source: BBC iPlayer Performance Pack

50 Mobile means richer, not limited The smartphone is now a more capable and sophisticated internet platform than the PC Personal Touch Sensors Cameras Location Payment Social integration Security And much easier to use…

51 Mobile is not a sub-set of the Internet anymore. Mobile becomes the Internet - the main way that most people go online. Saying 'mobile internet' = saying 'color tv'.

52 Mobile’s multiplier effect Increase in sophistication and complexity of mobile is as important as the increase in scale ! Vastly bigger opportunity = 3-4x more smartphones than PCs Used everywhere Used much more Used in more sophisticated ways

And on mobile, the internet is different

54 For 20 years, PC internet mostly meant web browser + mouse + keyboard. Search (and later Facebook) dominated. Mobile unbundles the web into apps, apps into the OS (& other apps), breaks search. From stability to rapid, ongoing change.

55 0 250 500 750 1,000 1,250 1,500 Jun 2013 Jun 2014 Jun 2015 Billion minutes online, USA Mobile browser Mobile app Desktop Easy to say: apps are over half of internet use Fundamental shift in behaviour from desktop web to mobile apps Source: Comscore

56 0 100 200 300 400 500 Desktop web Mobile web Mobile apps Properties hitting US monthly user thresholds 5-10m 10-20m 20m+ users Apps drive increased concentration The app install test - do people care enough to want to put your icon on their home screen? Source: Comscore

57 0 250 500 750 1,000 1,250 1,500 Jun 2013 Jun 2014 Jun 2015 Billion minutes online, USA Mobile browser Facebook etc Mobile app Desktop But a third of mobile app use is Facebook… Source: Comscore, Scientia, a16z

58 0% 20% 40% 60% 80% 100% iOS Android Mobile web traffic, Q4 2015 Other web views Facebook web views Web browser And Facebook is a mobile web browser Mobile web traffic could be almost doubled if we count use within Facebook and other social apps Source: Scientia

59 Really, nothing’s settled yet If I say ‘I installed an app on my Android smartphone’, what will that mean in 5 years’ time? “Installed” an “app”? Web apps, APIs, push notifications, messaging, Google Now… “Android”? Chrome, Xiaomi… “Smartphone?” Watches, Amazon Echo, wearables, TV, tablets… “I installed an app on my Android smartphone ”

60 OS competition drives continuous change Apple and Google both won the mobile OS wars, in different ways Both keep innovating Source: Apple, Google, Gartner, Facebook, Akamai, IBM, a16z 0% 25% 50% 75% 100% Phone unit sales Facebook users Mobile web browsing App store revenue US 'Black Friday' sales Global mobile market share, Q4 2015 Android iOS

61 There’s no single global market anymore Global tech market shares mean relatively little - there are many markets with sustainable scale and they can look very different Source: Facebook, a16z 0% 10% 20% 30% 40% 50% 60% UK USA FR DE IT ES ID BR IND MX TR Facebook users as % total population, December 2015 Non-mobile Other Android iOS

62 A smartphone OS isn’t a neutral platform Smartphones are internet platforms. On PC you built for web: on mobile you build for the OS. Interaction moves down the stack from apps and the browser into the OS itself. And Apple and Google keep changing things for everyone. Source: Apple, Google

63 And more platforms from maps and social New discovery, engagement and user acquisition models. Moving up the stack. Baidu Maps (screenshots) and WeChat have achieved this in China – Facebook and others trying to follow. Car services Hotels Local services Source: Baidu

64 More and more platform experimentation Huge scale opportunities and low entry costs mean endless experiments. New interaction, content and interaction models all the time. How to get usage, and who to send (or sell) it to? Keyboards ‘AI’ chat bots SnapChat Source: Riffsy, Facebook, Snapchat

65 0.0 0.5 1.0 1.5 2.0 Facebook Messenger WhatsApp Instagram Snapchat (daily active) WeChat Baidu Maps iOS Google Android Chinese Android Mobile monthly active users / devices (bn) Other Operating systems Facebook New platforms, new routes to market The great thing about mobile platforms is how many you have to choose from Source: Companies, a16z

66 Direct, 23% Youtube, 14% Search, 2% Facebook, 6% Facebook video, 27% Facebook images, 4% Snapchat, 21% Other, 3% Buzzfeed content views by platform, Q3 2015 New models for both content and distribution Each platform is both a different content model and a different acquisition model Source: Buzzfeed

67 “There are only two ways I know of to make money in software: bundling and unbundling.” - Jim Barksdale

68 App stores & discovery in 2016 = Yahoo in 1996 Mobile breaks the PageRank model for many services, and hasn’t yet been replaced. ‘Post-Netscape, post-PageRank.’

69 Web Smartphone apps Messaging? Maps? Now? Siri? Bots? Notifications? Looking for a 3rd run-time, with acquisition We unbundled the web into apps – now we try to unbundle or rebundle again, creating new ways to provide services, generally focused on new ways to acquire users

70 Interim solution: give Facebook $13bn How do you get traffic or get your app installed? Well… Source: Facebook, a16z 0 1 2 3 4 5 6 Jun 2011 Dec 2011 Jun 2012 Dec 2012 Jun 2013 Dec 2013 Jun 2014 Dec 2014 Jun 2015 Dec 2015 Facebook revenue by source ($bn) Mobile ads Payments & Other Desktop ads

71 But then, you always have to pay There’s nothing new about paying to reach customers Source: Google, Facebook, Zenith, a16z 0% 5% 10% 15% 20% 25% 30% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Internet ad revenue as % global ad revenue Facebook Google Other internet

What kind of gatekeeper works for you? Which is better – a department store or a boutique? Or all of them? 72

73 “Who, whom?” Who has the traffic, and to whom do they give it? And how does the platform change that? 73

Software is eating the world

75 The future as imagined in 1990 Newspapers thought the ‘information super-highway’ would cut printing costs. Yes, but… when the channel & route to market changes, your business changes too Source: a16z75

Thank you