a16z Podcast - a16z Podcast: A Copernican Update ... In Tech, the Smartphone is the Center

Episode Date: August 5, 2015

Given the endless time we all spend with our noses in our phones, it may not be too surprising to hear that the smartphone has taken over the tech world. But the smartphone’s dominance is so complete, says a16z’s Benedict Evans, that it’s useful to think of it as the sun, the object around which everything else in the (technology) planetary system revolves. Technology meets astronomy, plus Android’s Stagefright bug, and why three German carmakers are getting into the software business in this segment of the a16z Podcast.

Welcome to the A16Z podcast. I'm Michael Copeland. Given the endless time we all spend with our noses and our phones, it may not be too surprising to hear that the smartphone has taken over the tech world. But the smartphone's dominance is so complete, says A16Z's Benedict Evans, that it's useful to think of it as the sun, that object around which everything else in the technology planetary system revolves. And as with our own solar system, Benedict's mobile planetary model includes lesser bodies that circle around the sun feeding off its energy and pull. You know, you might see a smart meter is Pluto, you know.

It's like it's not very exciting. It doesn't look like it's got very much to do with the mobile industry, but actually it's using smartphone components. Putting the smartphone at the center of things also elevates the mobile supply chain above the other big component stream in tech, the one serving the PC industry. So instead of the guts of PCs being mixed and matched to create new kinds of tech gadgets, it's all the processors, radios, and other bits inside smartphones

that are the engine of current and future waves of technology. So as though someone took a shipping container of Lego and dumped it on the floor. You have all these bits and we're just picking up, working out what we can do with them. And so that's what's behind drones and wearables and connected TVs and connected cars and Internet of things and all of these other things. And if mobile is the sun, the companies and geographies that best harness that energy are dominant. Now it's about Apple and Google, and it's about Arm and Qualcomm and MediaTech, and it's about the San Francisco Bay Area and China.

And so all of those kinds of, all of the places that you'd go and the companies that were important have changed. And again, that doesn't mean that Microsoft or Intel have gone away. It just means that they're not setting the agenda anymore at all. technology meets astronomy plus android stage fright bug and why three german car makers are getting into the software business in this segment of the a16z podcast i sit here with copernicus otherwise known as benedict evans benedict welcome hello so copernicus you are not but you have equated the mobile phone to the sun explained for us what the hell you mean yeah so i thought it was just an interesting unifying metaphor for thinking about what's going on in tech. So the fundamental thing that's changed is we've exchanged a PC ecosystem for the mobile ecosystem as the dominant driver, the dominant force in the industry. So you go from one and a half billion PCs replaced every

four or five years to four billion mobile phones, maybe growing to five billion mobile phones replaced every two years, and those mobile phones are converting very quickly to smartphones. There's probably two billion smartphones on earth today, maybe two and a half billion. and the great majority of those mobile phones will convert. And so we'll end up with something like one and a half billion PCs and four to five billion smartphones. And those smartphones, again, being replaced every two years. So just a much, much, much bigger industry.

And you're not saying that the PC goes away anytime soon, and we're not arguing that, but just that's the number of PCs. Yeah, exactly. I mean, well, there's two separate things. One is just the sheer number of devices being sold reshapes, the hardware ecosystem. Secondly, the fact that smartphones are now at least hard, Half of all time spent online reshapes how the internet works,

which shapes how all sorts of consumer services works. In the longer term, it seems kind of inevitable that mobile devices start replacing more and more of how PC gets used. And I've written about, you know, what will happen to Microsoft Office over the next five, ten years. But that's kind of a separate conversation. I think the core of it is that it is now the mobile phone that sort of that's kind of the center of how the tech industry works. And that gets manifested in a couple of different ways. one way it gets manifested is that the supply chain becomes extremely important for everyone else

that is to say almost all of the components for smartphones are available off the shelf as commodity bits and pieces and in addition almost all smartphones are made by contract manufacturers who will put those components together for you to make something else and so it's as though someone took a shipping container of Lego and dumped it on the floor you have all these bits

and we're just picking up working out what we can do with them and so that's what's behind drones and wherever and connected TVs and connected cars and Internet of Things and all of these other things. They're all basically using smartphone components and also all being put together by smartphone manufacturers or smartphone contract manufacturers, so Foxcon and all those kinds of companies. And it's not to Peter Levine's point here at the firm, it's not just, you know, smartphones are going into drones and things that are small and things that are like embedded in your light switch, but that the components.

But into everything, right? Yeah, it turns out that you just have a much, much, much bigger industry and see. you have much higher volume, you have much greater rate of innovation, and you have all these new kinds of components that didn't exist before. And, you know, in a data center, for example, it turns out that being low power and low temperature is actually really important in a rack, just as it's really important in a smartphone.

So, you know, you have all these kind of generalizable applications. And then that ecosystem spreads out to all the components that are used to create all sorts of other things as well. Now, the thing that, the interesting thing that comes out of that is that it means at the center of gravity for the companies and the places it's a matter of change as well. So it used to be that you would go to Microsoft or NTDocomo or Nokia or Intel to find out the future.

And you'd go to Seattle and you'd go to Finland and you'd go to Japan to see the future. Right. And that's not true anymore. Now it's about Apple and Google and it's about Arm and Qualcomm and MediaTech. And it's about the San Francisco Bay Area and China. And so all of those kinds of, all of the. places that you'd go and the companies that were important have changed. And again, that doesn't mean that Microsoft or Intel have gone away. It just means that they're not

setting the agenda anymore at all for what's going to happen next in all these kind of experiences. And so if the mobile phone is the sun and to continue the planetary analogy, what are the rest of the planets out there and kind of how do they spin out? Yeah, so this was the thing. So I actually came to this thinking about the watch, which is that you have all sorts of different planets and different orbits and they're big and small and they're boring or interesting or exciting or you know then you have kind of like messaging out as a client a comets you know that kind of spin around and explode or every now and again yeah every now and then one of them glows in the sky right um look it's a mere cat yeah and so you know you might see a smart meter is Pluto

you know it's like it's not very exciting it hasn't got doesn't look like it's got very much to do with the mobile industry but actually it's using smartphone components then you might have some other kind of product that's got like a thermostat or something that's got its own UI, it's got its own connected services, it's a standalone thing, and yet you probably control it from a smartphone, and again, it rests on the smartphone supply chain. And then I think most interestingly, you have things like cars on the one hand or TVs on the other, where in a sense you have, particularly TV, has become dumb glass, that they are remote screens, they're either, to the extent that they're not running broadcast TV, they're

made screens for smartphone. And I think we were talking about this earlier, there's kind of an irony in here that, you know, all us out here, Nadella's reconfiguring of Microsoft. The stuff that got attention is writing down the mobile acquisition from Nokia and really signaling the end of Windows everywhere

as the kind of the driving strategic force of the company that, you know, you can get office on iPad, that they're neutral as to what, you know, it's not all about Windows and Office anymore, and those are kind of the legacy platforms and Microsoft is trying to work out what it's going to do next. Yeah, so it's interesting, but the interesting And it's not clear, no.

But the interest, and I wrote a blog post about this, sort of talking about what productivity is going to look like in the future. But the interesting thing in this context is it's not just the death of Windows everywhere. It's also that Satya said very clearly that the Xbox isn't core anymore. So that is fascinating to me because the Xbox was one of those things where if you were at Microsoft and you wanted to be like on the team that mattered and the team that was going places, you often wanted to go to the Xbox team. Yeah, it's a bit like Google Plus at Google.

That's what the TV is that kind of about. What happened? Or what is this an admission of you? Or at least a, I don't know, acknowledgement on it. So there's an irony here. So I was chatting about this on Twitter the other day that sort of if you look at all the predictions of what was going to happen that people were making in 1990, it all sort of presumed that there would be a small number of big companies that would build everything. And the very phrase sort of the Internet Superhighway kind of presupposes that it's about AT&T and Comcast and Microsoft.

and they sort of build it all. And if you look at what the mobile operators were thought about the mobile internet, they sort of predicted a lot of the stuff we're doing today, but they kind of thought they would be doing it. And what people didn't predict was the sort of permissionless innovation, that it's thousands of companies that are building all of these different things, and none of them depend on anybody else.

This is permission to do anything. This is what Mark likes to call permissionless innovation. Now, you then come back to the TV, but a big part of the vision in 1990 was it would be on the television. It wouldn't be on these personal computers that were these ugly beige boxes on a desk somewhere. Even though they tried over and over to convince us of the, you know, whatever they called the Entertainment Center from Microsoft.

Yeah, yeah, exactly. Really, everyone thought it was going to be about the, it was going to be interactive television. And this is what, you know, this is why everyone in those kind of companies sneered at the web because no, no, no, no, it has to be on the TV. And so Microsoft was putting interactivity on TV sets before when telephones didn't even have screens. Right, right. And yet here we are now.

And it's now painfully apparent that. you know, yes, games consoles are a thing and yes, there's a big business there. But actually, it's incredibly small relative to the size of the smartphone industry. Yes, games console games are better than smartphone games for now, just as entertainment arcade games

were better than games console games 30 years ago. But it's a smartphone that drives everything else. And so for the vast majority of people, the TV will be done grass for the smartphone. Rather than, so it won't be a box that's plugged into your TV that runs your whole digital experience. Right, and GameCon. Consoles will be for games.

Yeah, exactly. They will be like watches or thermostats or connected cars or there'll be another planet that orbits. And there will probably be games consoles indefinitely in some form, whether they end up being smartphones inside, really, which is what the original Xbox was, of course. But it will be the smartphone that everything else rotates around. And the role of the TV, yes, you may have a games console. Varsely more people, if they're doing anything digital on their TV, will be doing something that's fundamentally derived from the smartphone that's being controlled by the smartphone.

You said in this post where you describe your planetary system that the smartphone or the mobile phone is the first universal device that technology has really produced. And why wasn't the TV that, for example? Yeah, I say this and I sort of say it on Twitter every now and then, and every now and then people get extremely angry with me, and they think I'm being some sort of American Silicon Valley utopian visionary, which would certainly make many of my colleagues here laugh. I don't mean to laugh, but yeah. And so this is the thing. There are 5 billion adults on Earth out of about 7 billion people. And depending on what estimates you make, there are between, say, 3 and 1⁄2 to 4 billion

and maybe 4.5 to 5 billion. Maybe isn't it? So say 3.5 to 4.5 billion people on Earth have a mobile phone today. 3.5 to 4 billion out of 5 billion adults. And so we are now long past the point that you could argue about. you know, is an impoverished farmer in rural Africa going to have a mobile, Africa are going to have a mobile phone, is a fisherman in Indonesia going to have a mobile phone? The answer is, yes, he will, and quite possibly someone in his village has one right now.

Right. You look at sub-Saharan Africa, it's already at 40% population penetration of mobile phones, and that will go up to the same 70, 80% that you have in Western Europe and of real people. Like, you know, there's always like 10% of the population doesn't get these things even in America. And so, you know, these are now, you know, a mobile entry price of a mobile phone now is $5 to $10 to buy the phone. And an Android phone is $30 to $40. And that's not subsidized price. That's the actual price of buying the thing.

And then you get onto a whole set of challenges around, well, what do they pay for data? How do they charge their phone? What do they pay to charge their phone? Because they're probably paying someone who has power to charge their phone. Where does solar come into that? Where does Google's drones and all this stuff come into that? So you've got a whole kind of gray area around the edges. but fundamentally you get to a point that there are four or five billion people on earth you have a smartphone

and PCs are about one and a half billion and half of those are corporate so it's 800 million PCs or 7 or 800 million PCs that are in someone's home and that's yes that's per household rather than per person so you know it's a slightly different metric but it's not a universal product and television in the same sense yes it has very wide reach but television in a bit in rural India means a television per village or two or three televisions per village. It doesn't mean two or three mobile phones per household. Right, right, or per pocket for that matter. Yeah. So you mentioned Android and something that happened recently was this hideous Android bug. Stage fright? Yes. I'm frightened just saying it because I know that my phone is not patched. Well, I love my favorite line about this is it's the first time anyone has managed to make

an app that runs reliably on 95% of Android phones. Yes, and that's the problem, right? It's backwards compatible like nothing else is. Well, so what can I say about this? There's a couple of things. The first is, you know, bugs happen. Bugs happen to everyone. You know, Apple's had bugs. Microsoft had bugs.

Google's had bugs. It happens. The issue here is, and this is, of course, an old issue for Android, is that the only real way to get software updates for an Android phone is to buy a new phone still for a whole bunch of reasons that, you know, we are all pretty well understood at the moment. Now, the kind of the thing that I tend to say when these topics come up is that that Android fragmentation and sort of Android software updates and all these kind of issues are both very overstated and very understated.

So on the one hand, something like 96, 97% of all live Android phones outside China, where Google isn't present, but all the ones outside China that are therefore mostly connected to Google, over 95% of these things have the latest player version of Google Play services, which is updated, I think, every two weeks. And so if Google push out a new messaging API or new payment API or some new to the for their layer of internet services, everyone's got it, so there's no fragmentation. Right.

On the other hand, there's 4,000 devices out there, and they've all got different chips and different implementations of the software, and so if you want to write like a video messaging app or something, it's not 95% of the basis on one version. It really is 4,000 different devices, and you've just got to pick the top 20 and test.

And this is kind of, it's just kind of inherent in the model that, you know, Microsoft to obviously rate down Windows phone, effectively, this is another piece of capitulation. They basically now given up on Windows phone, although they haven't quite admitted that in public, but they have. Right. Turns out the customers gave up on it long before a Microsoft.

Well, exactly, yeah. But the thing is, if you want to know what Android would look like, if it had no fragmentation, if it had completely uniform upgrades, if all the hardware looked at the same, look at Windows phone. Right. That's what you would get.

That's where it would have ended up. And, you know, the price that you pay for having 4,000 devices is that you have 4,000 devices. You know, there's a glass, half, half, empty, glass, half, full thing here. The challenge that Google faces is that, you know, they've gone slightly too, they've found themselves slightly too far down that path because it's one thing to say, well, there's 4,000 devices, so yes, of course, they don't all have the same GPU.

It's another thing to say there's 4,000 devices, so it's impossible to update the software for all of them, so you've got this vulnerability living forever. Well, let's shift gears, no pun intended when you hear about what this topic is, but Daimler, BMW and Audi teamed up to buy Nokia here, right? Or Nokia, as you like to say? And Daimler. So, yeah, so, yeah, this is kind of a weird story. But it is mobile.

It is mobile, yeah. So pre-Iphone, I think, certainly a long time ago when Nokia still ruled the world and thought it would rule the world forever, maps were clearly very important. And so they bought, I think, Navtech, I forget now. Yeah, yeah. They bought Navtech for like $7 or $8 billion. A massive amount of the time. A massive amount of money.

And this was this big strategic asset. And then Google comes out with Google Maps and explodes the whole industry. but the business is still there and they kept it when they sold the phone business to Microsoft and there's a story in there which is a story again there's an interesting political story about why that happened

but anyway they kept it but it was clearly completely non-core because Nokia now is a network infrastructure business and actually quite a good network infrastructure business Sean of the handset business but it was clearly no place for that inside Nokia so it was just a question when it was going to get bought. And maps are really interesting right now. Google, there is the Google platform,

but anyone who isn't Google and has aspirations to an independent life does not really want to allow on Google Maps indefinitely. And so Apple has gone from the fiasca of a couple of years ago to a now sort of not bad mapping product and has now built a fleet of cars to go out and build its own maps, finally, having previously relied on trying to stitch information together from lots of other people, it looks like what they're going to try and do is basically do a carbon copy of Google Maps, which is not in a possibly hard project, it just takes a lot of time and a lot of money, which is what they have and which is what Google did. And we all remember the days when Google Maps was terrible, too, once, which, you know,

it takes time and effort. So Apple is doing this. Microsoft has basically given up on Maps. It shut down Bing Maps and sold the Bing Maps assets to Uber. and Uber bid against the three big German car companies for the Nokia Maps business. And so here is an interesting challenge. Clearly if you are in the car business,

you are looking with increasing concern at what Google might be doing in the future. And self-driving cars are fundamentally a routing and dispatch and control question, which means maps. So maps go from being, oh, I've got map on my dashboard instead of having to look at a paper map to this is a fundamental enabling technology of how cars work.

Right. They become fundamentally important. They become like oil for how self-driving cars work. Especially if they become electric cars because the sort of engineering is far simplified, et cetera, et cetera, et cetera. Yeah, exactly. And again, we can do a whole podcast about cars and how that changes. But this is this fundamental point that maps move from being this nice feature like, I don't know, like the CD player. You've got maps, you've got a CD player. Suddenly with self-driving, they become this fundamental. the mentally important strategic asset. And so it becomes terrifying for a car company

to be dependent on Google for that. It's fascinating because car companies, and we did a podcast with Peter Levine and Ash Ash Atosh, and that we were talking about how every company is a data company. And this is just an even bigger example of that. But I thought this was a really interesting thing, is who is bidding against Mercedes Bia and Volkswagen in effect? Who's bidding against them? Well, Uber.

Right. Uber is just a taxi company, isn't it? well so again it's a transportation it's a transportation company and it's a platform company that's a bit like saying it's a bit like saying

hey Google just does text search well no no Google is a machine learning engine Google is about understanding everything and what is Uber well Uber is a you call it transport call it logistics

call it the way that I think about maps is that maps are kind of page rank for the real world and so if it is your business to send stuff around or own stuff that moves around within that then you need to own maps but all of this again comes back to you know my kind of

original point that the smartphone is a sort of sun for all of this um everything revolves around mobile everything revolves around that pocket supercomputer that you have now it may be that the car is doing this as well i actually have i have this incredibly clever and very sophisticated device for integrating smartness into my 2009 car which is it's a rubber clip that slots into the air conditioning event. And I can instantly add to the latest pocket supercomputer to my car. That's amazing. It's right there, huh? Yeah, exactly. Why does it? And so I always feel slightly ambivalent about the idea that you should add any kind of a smartness to a car. Like, why don't I just use my phone? Well, it's funny. I remember having a conversation with a very large

American car company a few years back for a story. And I told him exactly that. I'm like, you guys, this is your domain and it's disappearing. It's going to this thing in my pocket right now. And whether they're able to reverse that, whether this purchase of Nokia's mapping business is a step forward or if it's just another large company buying a software company and not knowing what to do with it, we'll see, I guess. Well, so this is, I mean, this is the point Ben Horowitz has made. It's a lot easier for software companies, software people to learn something else than people from another industry to learn software. And so, you know, we talked about the Android vulnerability. What about the Chrysler Jeep vulnerability?

It turns out... I don't even want to mention that my car happens to be made by Chrysler Fiat, and so not only is my phone vulnerable, now my car is. But fundamentally, you know, who is it best, who is best placed to add software to a capital good that's made every 10 years by a non-software company? Is it by that non-software company hiring some software developers? Or is it best added by Google, Apple, Uber, somebody else?

It's a smartphone that drives it. And, you know, we talk about the Xbox. You can talk about the car. Again, the TV is dumb glass. And the screens in the car are dumb glass, actually. And they should be powered by the smartphone. Well, we will see what gets powered by what. And it seems like you, so far, your planetary system and model is holding up.

And when it doesn't, we'll be back and talk about that, too. Benedict, thank you. Thank you.