a16z Podcast - a16z Podcast: Selling Tech to Everyone -- Changes Everything

Episode Date: October 31, 2014

It’s always hard to predict how a generational shift in technology will impact the wider world, especially when you are in the trenches building that new technology. It happened with the mainframe computer, mini-computer, and the PC. These were all technologies that fundamentally changed how industries functioned and culture evolved (especially the PC plus internet), and in ways that were hard to predict. With mobile and the smartphone, a16z’s Benedict Evans argues, the impact will be even greater. a16z Board Partner Steven Sinofsky joins Evans in a conversation examining the massive scale and monstrous leverage of mobile devices and the software running on them and how -- unpredictably as always -- this technological shift is changing the world. As Sinofsky puts it, “Mobile is everything.” The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hello, this is Benedict Evans, and this is the Andreason Horowitz podcast. I'm here with my colleague Steven Sinovsky. I put a presentation online that I gave at a Wall Street Journal conference. that our own Tech Summit conference this week, where I talked about the way that mobile is changing the tech industry, but also the way that it's changing the broader economy, moving out into broader sets of industries. You can see the presentation with the talk that I gave with it on A16.com, and Steve and I are going to talk through some of the themes within that. So, Stephen, there were kind of three things that I wanted to capture in this presentation, and they both kind of give rise to a bunch of interesting questions.

The first was just to point out how much bigger mobile is than the PC industry and then consumer technology has been in the past. But more importantly to kind of make the point that it's not so much that it's bigger as that this is the first time that tech actually sells to almost everybody, that previously you sold mainframes to companies, you sold PCs to upper-middle-class households, but mobile and therefore smartphones is a product that 70, 80, 90% of people on Earth are going to have. And that's kind of a profound change. And it changes the tech industry and it

changes how the internet functions. But it also gives rise to scope for these kinds of products for the tech industry overall to change much broader parts of the economy for kind of software and mobile and mobile devices to push into changing areas that maybe haven't been affected as much by technology so far. Yeah. I mean, what to me is so fascinating about this is how when something has such a huge exponential change, it gets very, very hard to predict. And it does appear, too, that the closer you are to, like, actually helping make the change,

in a weird way, it's almost harder for you as an individual to see the changes because you're mired in all the details. You know, you can just be a normal person who one day is hailing a cab in the rain and can't get it, and then the next day you have this app on your phone and cars just show up to exactly where you are. And that's a huge change. But to those of us in the industry that have seen this gradual rise or even maybe the rise and then they just went away because they didn't really work out in the bubble and then they come back, things never quite seem as big as they might actually be when they're happening.

And so there's this pushback to change when it's happening. It feels – and I think that's right. It's also because you have these step changes, these generational changes. And so you go from doing stuff with a mainframe and a terminal to doing stuff with a PC and you go from doing stuff with a keyboard to doing stuff with a – a graphical user interface, and then you go from native applications to the web, and then you go from the web to mobile, and then you go from mobile web to mobile applications. And at every change, the people who are profoundly comfortable and know absolutely how to do everything that they wanted to do with the previous generation, look at this and say, well,

this is a toy. Right, it's a toy, or, you know, it's actually what happens is there's, like, basically, you know, innovator's dilemma applied to a person. So it's this very deep personal thing. where your own skills, like, in a sense, come into question. And, you know, developers like to think in code, and code is code is code. But actually, there have been huge profound changes in the code that gets written. And people do often resist that, those kind of changes.

And what's amazing is that even as an engineer going through all of those changes that you mentioned. I mean, my freshman year of computer science was on a mainframe, minis, I went through all of them. At each step, it was amazing. to me when I think back, the people who just said that this new next step was never going to be the next big thing. And it's just unbelievable. And it wasn't

I mean like certainly, you know, everybody said the PC was a toy compared to the mainframe. I mean, like, in fact it was a toy compared to mini computers which were basically just larger proprietary PCs. And then the PC you know, everybody was just like you know, because it looked just like a mainframe

when you used it. And then the graphical interface came out and everybody just said, Well, see, this is just a toy. I mean, I, you know, I worked in the Mac lab when the Macs came out on college campus in 1984, and people used to come in and literally treat them like they were toys. Like, it was like, I'm going to go over here and do my punch cards with my statistics. And over here, I'm going to just draw a picture for a fraternity or sorority party. And yet, as things become ubiquitous, then all of a sudden, the nature of what everybody uses them for completely changes.

And I think that's the essence of what's really going on with mobile. It totally changes the very nature of activities and businesses. Well, this is a thing that what happens when each wave of tools come into a business. And it's not even just a technology thing. You could apply it to automobiles or new types of things in retail. What first of all happens is that the new thing has to fit the existing way of doing it. And you say you torture it and kind of cripple it and you make it fit what you did before. And then over time, people come in and this is where the kind of,

of the transformative change comes in, people build an entirely new business around the stuff that is only possible because of this new technology. So the example that I give in my presentation is if you think back to things like Walmart or McDonald's, which are fundamentally enabled by things like trucking or interstate highways. And, you know, department stores use trucks and interstate highways as well. But it's, in turn, department stores get destroyed by this fundamentally new technology. And it's the people who look at this and grasp, okay, you could build a big box store using this technology. That's actually what redefines how that industry works. And I think you see the same thing with computers. So they first of all, they come in

and you'd write your memo and you print it out and you put it in the inter-office mail and it would arrive on somebody else's desk two days later and then stuff would happen. And you had a typewriter somewhere in the corner of the office. Even when I entered the workforce, there was a typewriter somewhere in the corner of the office to fill in, you know, carbon paper forms and things. But then over time, what happens is, you know, the workflow flows altered to fit the definition, to fit what becomes possible with these new tools. And so people now look at a smartphone or a tablet. And I think there's two mistakes that people make.

The first is to say, well, I enter high volumes of text, or I do this precision work with a detail work with the mouse. You can't do that on a smartphone or a keyboard, therefore it's useless. And the answer is, yes, but most people don't actually do that. That's a very narrow set of idea of what it is, of all the work that is being done in the world today. And the second answer is, is it actually your job to make a 45 Sloughed PowerPoint once a month? Or is it your job to run a sales team and make sure that everyone in the organization knows what's going on?

Because you probably can't do a 45-page PowerPoint on a smartphone, but you probably can connect to Salesforce and understand what your team is doing. Right. And what happens is what people need to do before they get their head around those that sort of your accountability versus your work process is you always have to take a deep breath and realize whatever it is that we all use today, there was a point in time when it was the disruptive thing. And we often seem to forget that. I remember when the internet was CB Radio. Right. And now it's this ubiquitous thing that takes over and has changed the way we view and do everything. And to me it's always those interesting moments when there was a before the mouse

or there was a before, you know, a touchscreen phone, or there was a before service-oriented apps. And just because they're ubiquitous now doesn't mean that they're the permanent thing. And so what I think is most important, you know, when I think about being an engineer or being part of running a business, is how you really embrace these insane changes.

Like whatever lanes you think were carved out by the time you got there, our jobs are all to carve out new lanes. And to, you know, in Steve Jobs, who's, you know, destroy the business that you're currently in in order to make a new one. Yeah. I mean, I think that's true.

I mean, the other interesting strand here is that, you know, right now there are, as it might be, 3 billion people online. And there's probably about, by the end of this year, there'll be 2 billion iOS and Android smartphones plus, you know, Windows phone and maybe a few blackberries left lingering on. And that will go to 4 billion in the next 5 years or so. And so the number of people online will go to 4 billion, give or take. And there's a few, like, problems with that, like, you know, cellular coverage

and, you know, the price of data and stuff. on. So there's a bit of a gray area at the edges. But that means that there's going to be a billion people whose first experience of the internet or the first experience of owning a device that can use the internet is going to be a smartphone. And quite a large proportion of the people who are currently going online in PCs are going to shift all of their usage to a smartphone. Because actually if you're not using a PC at your desk, what would you use by to use the internet at home? Would you buy a smartphone? Would you buy a new PCC? Would you maybe keep the PC you have for the last five years

and turn it on less and less and less. And so you're going to move to a point where, you know, as it might be half of the people online only have a smartphone. And a majority, the great majority, probably all the time that spent online will be happening on smartphones. And so that kind of changes all sorts of other stuff in the economy

because, I mean, one of the points I made in the presentation is this kind of leverage effect. And again, it's, you know, just as in the PC came in, it wasn't just that you could do your memos, but you didn't need to change a type of, movement. You actually could do all this transformation on these stuff that you wouldn't have been able to do before. And the same thing with the smartphone is not just that you've

got three times more devices. It's that the smartphone has applications and sensors and it's completely frictionless because it's in your pocket everywhere and it goes with you all the time and it has payment and will continue to gain all of these capabilities. And so it's not just that the opportunity is three times more devices. It's more like 10 times more actual real value and opportunity. Right. And from a from an entrepreneur point of view, what's fascinating to me is, is, you know, it is, like, it's sort of a cliche, but it is, like, everything, mobile is everything, because that's where all the innovation is happening. That's where all the, the, the field is being moved. Like, it's, you know, in college courses, you learn mobile application

development now. You're going to learn new languages that are really tuned towards the mobile world. And so you have to really embrace the fact that even if you're comfortable with the technology, and it has an ecosystem of people around that technology, like, the innovation is going to slowly decay, and particularly in a relative sense to what's going on. I mean, I remember the first conference I ever went to in our industry was the very last conference the digital equipment held as a really giant conference. Was that still on the Queen Mary? Yeah, they rented the Queen Mary, and, you know, it was like on a cruise ship, and it's this

crazy thing. And I remember, you know, just recently going to another conference here in the Valley, and I even remember at the digital conference, I was just out of grad school or in grad school, and I was like the young person, and everybody there seemed like grownups. And I know what it's like to go to conferences where all of the things being talked about are what it was like at the conference 10 years ago. And I was just a conference a couple months ago here where it was just the second one that was held. And it was filling Musconi Center.

And everybody in it had just graduated college. And all of the work was new in ways that things hadn't been done before. They weren't rewriting old things. They didn't even know what the old things were to rewrite. And I think for me, once there's a phone everywhere, it doesn't just change that everybody's got a phone and everybody's going to buy stuff online, but all of the energy about writing new code and how apps are built and the architecture and the tools all are moving to that. But these also happen really slowly. And what happens is people look for the fact that it's happening slowly as evidence of non-change. And each one of these generations, I mean, when PCs has to replace mainframes, you were looking at thousands.

of mainframes around the world that needs to get replaced. And so that was one speed. And then when the graphical interface came along, it had to replace a few million DOS machines. And then when the internet came along, it had to ride on top of tens of millions of computers. And so now you have a billion PCs. They don't just evaporate, and all of that work doesn't change. But it is actually changing. And I think I look at what happened with the recent Adobe conference.

And they showed two forms of new kinds of work that I think really speak to the way that the ecosystems are changing. First, they showed a lot of work happening on tablets, whether they were Windows tablets or iPads. And then they showed a lot of work that used to happen in their full suite of applications happening in Adobe Creative Cloud using apps.

And this is like the hardest core, most precise, professional kind of work that they're talking about. Yeah. It's kind of interesting, like things reach that they're kind of purest and best stage just before they're over. Yeah.

So we have the, you know, this 27-inch IMac with this incredibly fast chip and this incredibly high definition of screen. And the thing I've sort of said several times is my son will probably never see a pixel, except kind of ironically. Well, but yeah. But yeah, that's like that will be, you know, if I buy that, that will be the last PC I ever buy. Oh, it will last me for 10 years and who knows why I will be then. And I think, and to you, but everything is like that. If you, I look at the automobiles today, and I think that the ones that are being sold today are the very last cars that are going to basically require. a driver. Now, they'll, but for 25 more years, you will be able to buy these cars. It will be the

last car that you car that I buy that requires a driver. Yeah. And in 10 years' time, I'll buy a new car and it will, you know, I might still be able to drive if I want to, but. Well, and also, you know, and when you speak about how software changes those things, cars are a great example too, because the highways and the freeways and the roads and automobiles created suburbanization. Yes. And then once you now have all sorts of ride sharing, telecommuting and technology, you can move back to the cities. And so there's this mass global urbanization taking place where technology is sort

of the core of what's enabling that. And all of a sudden, you can do that comfortably because the idea of using like a lift to go to and from the suburbs to your city job seems absurd. But the idea of using lift to get around the city core. Or indeed using a lift to go to and throw your suburban job

from your home in the city. Right. Right. Right. Oh, okay. Well, yeah, that's true. Yeah. I mean, you know, go right back. Of course, that's what happened with the Wellways as well. created the suburbs in Europe because all of a sudden you would commute to what we call the brick fields and all the farmland of Europe was built over in hazards. So yeah, I mean, there's this, and as you say, it's hard to grasp the change because you're sitting right on top of it and it's happening slowly and every new thing that happens doesn't feel exciting

to you because it's just one step forward. I mean, it's fascinating to me to watch the video where Steve Jobs unveiled the iPhone. and to watch what people cheer at because you know you look at it now and it's like so what it's an enormous high definition color type screen you know who cares you know what's exciting about that but back then nobody had ever seen anything like this and actually even more striking for me because i'm sort of that much younger is seeing the original video where he unveiled the original mac yeah and the thing comes up and it's got a color screen and people scream and then you get an actual font on the screen scrolling and it's like people of becoming delirious in the audience because nobody ever had done this before. And now you kind of look at that and you go, well, what's the big deal with that? Well, I think that payments are like that right now.

And I think as we go forward and, you know, I view this is just a chance to really try to encourage people to realize just the scope of the change that's happening at the entire computing stack. And payments are a great example of that because the incremental view of what Google did with wallet,

which Apple kind of did a little bit of stuff that's similar, but in a much more refined and easy to go away with great partners and all that, mostly great partners, you know, what happens is, is you look at it and you see the incremental nature of it. But if you start to think about it under the hood and you realize, wow, it's kind of built on top of a bunch of 1950s technology, whether, you know, with credit cards and service fees and a whole system based on fraud. I mean, like every, all of those fees, people love to talk about that they don't call the incremental cost for transit, that's all to protect from fraud, which was all because you just had.

a plastic card with numbers on it that was easy to steal. And so once you imagine like a world where there's no fraud potential, then the cost does drop. And then you imagine a world where your bank is actually with you. Like you don't need your money recorded on a ledger in another institution because that ledger is the internet. Well, it's like the classic thing that, you know, one of the big categories of crime in the past used to be payroll jobs because a factory would pay people in cash in an envelope

every week. And that would be delivered in an enormous truck. every week and so there's a truck full of money. So you go and rob the truck and there are no payroll jobs anymore because nobody gets paying cash anymore. I mean, to your point about payments, I mean, I was thinking about the Apple, the way that Apple kind of tends to build these things,

which is actually kind of topic for another blog post. But I thought the interesting thing here is, on the one hand, they look like a great partner because they're not gone and built their own payment platform. They're not trying to compete with Visa or Master Car. They're not trying to compete with Chase or Wells Fargo or Lloyds or, you know, any of the retail banks. they're just going out and providing a better end point.

But that's actually what they do. And they did the same thing for the music business. They didn't create a record label. They didn't buy sign-up artists. They didn't have an AR guys. Which a lot of people told them to do. Yeah, yeah. And they also in the mobile business.

They didn't create an MV&O. They didn't buy a mobile operator, which a lot of, you know, not very perceptive people thought would have been a good idea. And they decided, no, no, we don't know how to run a mobile network. We don't know how to hire artists.

We don't know how to think about fraud. Well, let the people who do that run that business. And so you've got this kind of split between this very, very tightly integrated built on the back of lots of partners who actually do the other thing that Apple doesn't know how to do and Google doesn't actually know how to do even though they're generally being grad students

they generally think they do know how to do. But the big difference here is if you look at what actually happened to the music industry, Apple looked like a great partner, but the mere act of applying software to music, even in a kind of a quality, it looked great because it was legitimate way that you could buy music instead of piracy,

but actually applying software to music was profoundly destabilizing. And, you know, the most obviously because people were going out buying tracks instead of buying albums. And in TV, that hasn't happened because they're all these kind of tight interlocking meshes around rights and broadcast and cable companies

and so on, which is again, there's another conversation. Although Netflix is kind of chiseling away at that as well. But then I look at Apple Pay and I say, okay, on the one hand, this sits entirely on top of the existing structure and it doesn't really change the market structure at all. And that, of course, is why Apple was able to get all these deals done because they weren't where Google Wallet was kind of really upsetting the existing value chain.

Apple just sits neatly on top of the value chain. But then you think, okay, if I've got a payment card on my phone in software that can be provisioned in software immediately, that changes almost everything about the kind of the whole go-to-market of how you do financial services. And yes, I can put my Chase card or my Amics card into it. But that still has kind of a profound change into how you might do payment in the future. And I think that like when people do the pictures of, you know, all of the devices a smartphone replaced. Yeah. I think the next generation of picture. They're going to have your car keys, they're going to have your house keys, they're going to have your

ID for badge. Apple kills pieces of plastic. Right. And it's pieces of plastic and pieces of metal and all of these tokens. All of these tokens are software is going to eat them and really build up. You know, I mean, that's sort of, I suppose the final point that I was going to make here is the thing that's happened with each of these previous ways of technology is that once everyone had them, they kind of disappear. So, you know, we're sitting in an office here powered by electric light, talking on microphone instead of run by electricity. We wouldn't think that we're having an electricity experience here, or that we're using an electricity product. And, you know, we drive in cars, we take railways, we fly. These technologies have disappeared. They just become an ordinary

part of everyday life and you don't think about them. And the interesting thing that is starting to happen with computing and with software now is it's pushing out of the technology industry. And so when you have, you know, when you have mobile everywhere, when you have payments being pulled in, when you look at companies like Airbnb or Uber or Lyft, where you're actually building companies using this stuff, but they're not actually technology companies. This is the thing that if you look at Uber,

you could say it's a technology company, but it's actually a transport company. And Airbnb is actually a travel company, and BuzzFeed is a media company. That's the sense that, you know, you kind of reach this potential kind of escape velocity in a sense, that people are building stuff with software, that's just kind of changing a whole other industries now.

Right. And what happened, and just my view of it, just to wrap up, was that what happened in all through the second half of the 20th century was companies made one thing. And then as the century evolved, they realized that they made most of their profit from managing the money behind making those. And so all of the biggest companies in the world

basically became banks. And there's obviously GE. And all the car companies and everybody did Boeing, everybody did these capital equipment like that. And slowly what's happening is now software is replacing money in that regard. And so every company is just at its core going to end up being a software company. What's really unique about what's happening with software is that it enables entirely new companies to get built. To look at the problem in a different way, as Chris Dixon calls it a full stack.

And it means you get to slice up the responsibilities of delivering transportation or delivering entertainment in a different way because software erases those physical boundaries between things. Absolutely. Great. Thank you very much. Thank you.