markets Archives - Alex Eckelberry

Dissecting the dissector: Mary Meeker’s presentation

Each year, Mary Meeker of KPCB does a data-overwhelming presentation on the state of the internets. Her slides and slide volume are famous: this woman knows data (there are even attempts to make her slides better).

There are not many surprises in this year’s presentation, but there are important highlights that are valuable.

There’s a lot of money being made. Tell us something we didn’t know.
The presentation starts with a nice throwaway slide. It’s largely useless but a nice way for Kleiner Perkins to pat itself on the back and for Warren Buffet to feel silly.

(So the market cap of internet companies is massively bigger, because, well, the internet is massively bigger. Plus there’s this asset inflation thing going on.)

ASSET INFLATION

Okay, on to the meaty stuff…

If you haven’t figured it out, it is all about mobile.
Mobile, peeps! Just yesterday, I went to the website of a well-known technology company, only to find that the website was unusable on mobile (clearly, they ignored me).

But this is all not about creating mobile websites. It’s about mobile as the fundamental paradigm. The desktop is a “who cares” proposition. If this isn’t clear to everyone within hailing distance, I don’t know what else to say.

So, we start off with the obligatory OMG THERE ARE SO MANY MOBILE USERS!!112!!

Whatever.

Mobiel12931888123818231A

But this is interesting:

Thisisinteresting 1231231238

In other words, the daily usage of digital media on mobile is now the majority of the time spent during the day. Kind of obvious, but it’s still yet another wake-up call.

But don’t worry, there’s still plenty of greenfield:

Greenfield19238123818

ARPU (not a typo)
Then, she talks about advertising, but in the context of Average Revenue Per User (ARPU), it’s up but the growth rate is slowing.

It’s still incredible, but…

Here’s the impossible-to-understand chart by Mary Meeker:

Arpu12398123

But someone (namely, me) puts the data into a spreadsheet and then it’s clearer what’s happening.

Averagerevenueperusers123123

Okay, that looks sweet.

But now let’s graph the growth of Facebook:

Facebook average growth 19238

And Twitter:

Twitteraverage user growth 12988

Yeah. The growth is slowing. Ugh.

Desktop advertising. A big fat “meh”.
Oh, and just in case you didn’t get the memo, desktop advertising isn’t where the party is.

Desktop yoy

TV is so… not
Now, again on that whole mobile thing, take a look at mobile screen viewing.

It’s beating TV.

Tv viewing 123008123

(And she also basically says not to even bother with horizontal videos for ads, stick to vertical.)

Enterprise software is dead. Long live enterprise software.
There are quite a few slides spent on something that I really consider important.

Enterprise software as we have known it is dying.

Instead, we have innovative and (often) amazing tools by companies like Slack (reducing email traffic materially), payment gateways (Square and Stripe), business intelligence (Domo, my personal man crush on an enterprise software company), secure documents (Docusign), customer messaging (Intercom), customer service (Directly), HR (Zenefits), spreadsheets (Anaplan), recruiting (Greenhouse), and much more.

The future 12980801823123

This is important and what I’m spending a lot of my time right now working on — the complete revolution in enterprise software, from stuff that was disintegrated and required proactive action on the part of the user, to products that are integrated and are themselves proactive (domo is a perfect example). Some of these solutions are truly awesome, and I mean that.

Big data was the first big breakthrough, but there’s a lot more behind the story. It brings the vision of software as a unifying activity, not what it has been in the past — by any stretch of the imagination.

Do I sound breathless? Yup, guilty.

So onward, soldiers, let’s look at some more slides and have a bit of fun.

Messaging is huge.
Okay, messaging is big. I mean — really big. Messaging apps are top in global usage and sessions. No surprise, since human beings spend a vast amount of their time communicating (even if it is cat videos and other crap).

Messagign123912381823123

Will mobile be the central communication hub? Of course. It’s already happening. And that’s really important to understand if you are into that space. Or any similar space, for that matter.

Power to the peeps.
Now, along the way, some people may have forgotten about the most critical aspect to this whole community thing: the actual user.

And the user is now the curator and creator of content. It’s really massive.

Look at this data: Power to the people, indeed.

Apowertothepeople 129381823

And listen to the kids. They are leading the pack:

Cherishthechildren12391238

Cybersecurity wake-up call.
Then we move into my wheelhouse, security, where there are no surprises. But certainly some clarity. Again, mobile, BYOD, these are real issues.

A security 1293818123

A security 18833

The global stuff.
So then we get to a touchy subject, the global economy. If you’re pro-China, now is the time to pay attention. And if you’re pro-America, now is the time to really pay attention.

Usa loving 12888123

Now the good news: Americans will have more time to spend on cat videos on their smart phones.
And with US population growth outpacing job growth, more and more people are on the dole. There is probably a bit of bread and circus going on, but one cannot discount what has happened to the US.

The dole18881233

Immigration is slightly up. And that’s good, not bad.
Immigration is up. I think this is very positive, as immigrants, despite some who scream otherwise, infuse our economy and culture with freshness and vitality.

(Wait, you think that with downward job growth, this is a problem? Actually, no. Immigrants boost economies.)

Immigrants 128388123

Life still sucks for wedding planners.
And another reason we need immigration: We are going to need fresh citizens, because a) Americans don’t marry much anymore and b) the average household size has plummeted.

Marriage and household

Pay attention to the millennials. They are the biggest portion of our workforce now.
And now, with millennials being the biggest percentage in the workforce, expect the workplace to change.

Because they have different needs and wants than other types of employees:

Millenials 12888123

Keep a spare lance around.
And freelancers (yay fiverr) are 34% of the workforce. Yup.

And that’s good news, because the economy is not going to help them.

Freelancers 1888123

Elance, Airbnb, Etsy, Thumbtack, Uber, Fiverr, etc. are all a big help to freelancers.

China is doing the Estonia thing.
Okay, in China you can use WeChat to interact with the government.

Hey — I want that here.

China wechart 999123

There’s more on China and India starting on page 150 and the rest is other useful information, particularly on UI design.

So that’s my color commentary for now. You can see the whole report, here.

Of course we’re in a bubble. Duh.

Of course we’re in a tech bubble. But at what part? The early part? The late part?

What concerns me is that the biggest argument I hear for the “it’s not 2000” is this one:

Back then, those were not even real companies — today we’re investing in real companies.

WTF? Tulips were real in 1637. Houses were real in 2007. The companies being invested in the wild bull market of the 1920s were real (as were the companies in the Japanese bubble economy in the 80s).

It’s a completely illogical statement.

Every bubble needs a narrative. It needs a story. This “today these are real companies” is part of the story, the narrative.

Money money money
The Fed has been printing money at a mad rate for years. We haven’t seen serious consumer inflation because the money hasn’t crept into the general marketplace (increased money supply equates to inflation, but money supply is created through debt, and there’s not a lot of the right type of lending). Instead, the money finds its way into the public equity and debt markets, which reflects in a) lowered bond rates and b) higher equity premiums. Both low bond rates and high equity premiums are the fuel for private investments through a number of factors (wealth created by the public market looks to reinvest, private money wants to buy an option on a impending IPO by buying late stage, low bond rates creates an aggressive private equity market, etc., etc.).

What happens in Wall Street does not stay in Wall Street
So with this orgiastic money-love fest on Wall Street, you get a situation like this chart in the private company space:

Untitled

(Source)

That’s Series A valuations. Yeah.

As one VC told me a while back: “The exits are great. The entries are tough”.

Okay, there’s controversy.
There are plenty of statistics one can point to either way. PE ratios are way too high for comfort. The bubble proponents all have their theories — Bill Gurley and Michael Moritz (it’s these late stage companies — the unicorns), Mark Cuban (it’s the explosion of angels), Jeff Reeves (look at post-IPO performance) and Adam Lashinksy (the subjective reality, just look around) are all raising the alarm.

I was a professional investor between 1999–2002, working at a hedge fund and investing in private companies. I lived through that last tech bubble intimately. This one is different. There were complete douchebags with no business sense starting companies that were ridiculous. And there were idiots like me investing in them.

Subjective reality
However, I’m seeing the signs: The age of unicorns (I mean, come on! This isn’t something to be alarmed about?) Billions raised in crowdfunding, with virtually no oversight. The explosion of angels. The explosion in the cost of living and doing business in the valley and the city. The incredible challenges hiring new people. And, oh, it’s starting to get really hard to get a hotel in San Jose (not as hard as in 2000, when I literally stayed in a bug-ridden “motel no-tell” as my only option).

It’s simple to observe that as more money chases fewer deals, deal quality goes to crap. Just because some dude with a lot of cool talk is launching a tech company does not mean he has a clue as to how to actually run the tech company (something many learned very painfully back in the last bubble).

I got a lot of flack years ago when I wrote a similar blog post about oil prices. I was right then, maybe I’m wrong now.

The San Francisco effect
Several years ago, the “center of power” in tech moved from the Valley to the City. This has resulted in some fairly astounding increases in rent and housing costs.

In addition, we see the center of creative power moving from Hollywood to San Francisco. Who sets the design trends now? Not Hollywood, but San Francisco. Instagram, Twitter and Facebook can have more impact on a trend than the latest movie. Our design philosophy has even become bay-area centric. Look at sites like Canva: the designs are all SF. Ugly stock photos are now replaced by hip (and free) sites like Unsplash. It’s like the world is awash in misty mornings and cloud afternoons looking over the San Francisco Bay.

Case-Shiller_from_1990

This factor is squirreling the discussion, because people still keep talking about “the valley”. It’s not the valley anymore, it’s the city.

Now, the good news
The tech economy goes through massive secular disruptions every 20–odd years. In corporate America, the age of the mainframe went to the age of the minicomputer in the 70s, which went to the age of the microcomputer in the 80s , which went to the age of LAN networked PCs, which went to the age of Windows NT-based systems, and to now, what I call the age of heterogeneity. This is an age where devices are dislocated from each other in many ways: people bring devices of whatever type into organizations; people are working on various devices throughout the day. Consumer trends have been similar. There’s a freedom and there’s a whole new world of technology around it.

This is a major disruption and great companies are being built minute-by-minute.

It’s not a disaster and I’m still optimistic. But it’s bound to end. The problem is one runs out of buyers. All bubbles end in a parabolic blow-off. Perhaps we are in the parabolic blow off. Perhaps not. It’s possible, as past history has shown, a correction will hit in the fall. Who knows.

Just watch for when people just go into a frenzy of buying, believing it’s not going to end.

Because that’s when it ends.