a16z Podcast - a16z Podcast: The Year Mobile Began to Truly Dominate Tech

Episode Date: December 17, 2015

Benedict Evans highlights the past year in mobile. From Apple's ongoing rule of the high-end, to Android's spread farther down the price curve. Without a clear and massive shift on the horizon in mobile tech, Evans outlines the trends in mobile that will matter and that possess opportunity for the right companies and emerging technologies. For a complete rundown of the year's trends check out Evans' 16 Mobile Theses: http://a16z.com/2015/12/18/16-mobile-theses/ 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. Welcome to the A16Z podcast. I'm Michael Copeland, and I sit here with Benedict Evans. And Benedict has been putting together his year-end package, 16-16. mobile thesees. And it's your two turtle doves and a partridge in a pear tree plus 13 other things, I guess. It's a bit like

there's this old Russian joke that a bunch of guys have been locked in a prison cell for so long that they know all each of each other's jokes off by heart and instead of sending someone telling a joke

they'll just say 15 and everybody laughs. And I kind of thought like there's a whole bunch of issues that have been talked about and talked about and keep coming up. And I've kind of written three or four things about search and a couple of things about this issue and a couple of things about that issue.

And I wanted to kind of pull all of those together into one place as opposed to, you know, having a last post, most recent blog format. And I was also thinking, so that was kind of this kind of a practical point. Like, let's just have everything that I, kind of the way, all the different ways to think about all the different aspects of mobile and what the issues might be in one post. Right. And so you check out that post on A16Z.A16. and also on Ben Evans. Yeah, and so what I've done is I've basically written a paragraph about each of those, you know, outlining what are the actual issues around this question and then link the three or four posts I've written.

And so that's just kind of a kind of a practical thing that I thought would be useful. What was also sort of driving my thinking a bit is that we are kind of at a stage where we're sort of between waves in mobile, in that the smartphone wars are now over, or at least the first smartphone war was over an Apple and Google both one in different ways. and the kind of the first messaging app walls are now mostly over and Facebook, mostly one, in sort of various ways. And there's a few other examples of that. And there isn't like a big new trend coming up that like everyone's waiting for, you know, mobile payments or messaging or something.

There isn't like a new thing that's just starting to explode in that sense within mobile. Now, there's other things like AR and VR and AI and so on, but not within mobile specifically. And what we have instead is like we have this platform now. And then the question is, well, what are the different things that get built on top of that platform, whether it's productivity or search or, you know, or different user interaction models or sort of role of ecosystems and so on. So there's plenty on the horizon, it sounds to me, is what you're saying, but there's not this kind of massive shift that we kind of always keep eye out for. No, it's not like two years ago where you were going, wow, look at WhatsApp, look at Instagram. There's not like a big trend in that sense at the moment. So what have you been keeping your eye on in this year?

and I know we've talked about a lot of this, but what really jumps out and what has meaning and will extend into the future and have impact farther than we've seen thus far? Well, the metaphor I used a while ago was the sort of the tech industry is kind of like a solar system and the smartphone is a sun

and everything else orbits around it. And we had this sort of mental model that mobile is this new big thing and it's another new big thing in a tech industry full of big things and I think that's the wrong way to think about it rather that the mobile is the new central ecosystem in the way that the PC was the central ecosystem for 20 or 30 years.

And so then everything else gets built on that. So you rebuild productivity and you rebuild what large screen and small screen devices look like. You rebuild what the route of getting technology into the living room looks like. So, you know, for 20 years, people were thinking about games consoles or streaming boxes or something. It's like that would be the mass market consumer computing product. And it turns out, no, it's not. It's a smartphone.

And the screen is a satellite for the smartphone. And then there's cars. and there's watches and there's, you know, search and discovery. And those are all kind of things that sit on top of this new platform of sort of iOS, Android, doing over one and a half billion units this year and probably over three billion of those things in the world today. And so you've got this big platform and you're building the stuff on it. You just mentioned search and discovery. And one of the things that's virtually impossible, or very difficult at least, you know,

in the mobile paradigm is search and discovery. So what have we seen this year, and what do you think, what does that tell us about where it might be headed? I think there's a couple of things here. One of them is it becomes ever more apparent that on mobile, it's a smartphone, OS, that's the platform, or the OS, that's the platform. Whereas on the desktop internet, you targeted a web browser. Yes, you could write a Windows application that connects the internet, and yes, there was Steam and so on. But basically the internet experience within the browser, and on the smartphone, it's on the operating system, and you target, you write apps and web pages and other things. and the interesting thing is that it's also not a neutral platform

because Apple and Google change stuff and they do stuff that changes how you might acquire users and in parallel you've got this kind of search for another runtime like let's count what else could we build on that platform so first of the first runtime is the web the second runtime is native apps then you have people think okay well what else can we build so you have WeChat who basically built a messaging app that is a runtime Facebook would obviously like to clone that

there's other people who are trying to do something similar bydo has done that in maps in much the same way. And so there you have a development environment and also a discovery environment and a kind of a user acquisition environment that's in a new place and works in different ways and it's different from the web

and different from native apps. And that's still completely up in the air. Like we left behind this model we had for 20 years of web browser mouse keyboard, but we haven't settled on something new. And you have Apple and Google who can change stuff and do change stuff every summer and you have Facebook kind of trying to budding

and there's Amazon and there's WeChat and all sorts of other people kind of looking at this platform in a way that we didn't have on the desktop web because it was just the web browser and yes, they were browser wars but they didn't really change what you could do as a developer in the same way.

And do you foresee then runtime wars as it were? Well, it's interesting. I mean, the sort of slightly kind of the joke that I made is that like every spring Facebook says this is a future of interaction on mobile and like eight weeks later Apple and Google say look, sorry kid but it's our platform.

We get to decide how stuff works. and so we see it a little bit of that and yeah it is Apple and Google's platform now there is then there is another question and this is one of the reasons why the control of Android is interesting and why Xiaomi is interesting and so on is that it may not be Google's platform entirely and it's not there are some ways in which it's not Google's platform now

and therefore if you can if Android kind of spins away from Google or if Android becomes something else then it might be other people that might be trying to make those decisions And so we had this whole wave, of course, of Android launches that were all about trying to create new ways of discovering apps, and those almost all seem to have, none of those seem to have worked. But that was like another attempt, like, how do we create, like, a new way of finding and discovering things? Within the mobile context, let's talk about Apple and Google a little bit more, too. But maybe you can just say, okay, Apple, what are the strengths, what are the weaknesses in the mobile construct?

And let's go down the line a little bit. So where are we? So there are something like 7 to 800 million live iOS devices in use today. In 1995, incidentally, there were about 250 million pieces on us, just to give you a sense of kind of ecosystem scale. So Microsoft, Apple has got several multiples of what Windows had had when Windows 995 was a new thing. And that is big enough to be a sustainable ecosystem, particularly because when you come to the US, it's 30 or 40% of the install base

and 70, 60, 70, 80% of usage. And in San Francisco, it's two-thirds of the install base. And so you have Apple, though, you know, the fact that Apple doesn't have many users in sub-Sahuan Africa doesn't really matter to the ecosystem. And that's kind of different from the way the PC ecosystem would, whereas like the ecosystem was like the ecosystem, there's different market shares in different places.

And so Apple's got 7 or 800 million active devices. Google Android has got, say, one and a half billion. They gave a number in the summer of what, in the autumn of 1.4. So they've got about one and a half billion active Android devices. Higher proportion of those are phones and tablets. Incidentally, Apple has about 200 million active iPads out there. And then there's probably another 6 or 700 million non-Google Android devices in China, $6,000, 800 million, depending on whose estimates you believe.

And that gets us to something over $3 billion. And these are sort of forked Android, hands-sat manufacturers? So forked is a kind of a specific term. at the Kindle Fire is forked. That is to say it's built on Android, you would not hold it, pick it up, and think this is an Android device. Almost all the devices in China, you would pick it up and think this is exactly the same

as the one you bought in America until you look for Google Maps. Ah, and it's not there. So the Google Apps and Services Layer isn't there, but everything else is there. You mentioned, so let's talk about the weaknesses for both Apple and Google. So the weaknesses, so that was like the state of the unit. So the weaknesses are, I think, Apple has got this integrated ecosystem of hardware and semiconductors and sensors and software and manufacturing

that means it's able to create high-end experiences that are very difficult for anyone to match and really isn't really no one else in the market who's providing that experience in that way and so that particularly when they came out last year with a large screen phone it turned out that that took away half of the high-end market that they didn't already have away from Samsung and so Apple's position at the high-end and the mid-to-high-end is very secure they are weak in cloud services they are weak in building internet services they have a tendency to see those as pipes that connect beautiful user interfaces rather than thinking about what is the service first and you kind of see that with apple music for example although that's actually a bad example because with apple music the cloud bit is actually quite good as a user interface it's a mess which is kind of ironic given it's Apple and so they have so far not really touched like the mid-range of the hand-set market, and this has been an area of endless speculation for like five years when Apple do a cheaper phone. They could do a $300 phone now that would be a

great phone. It would, you would not feel, Johnny, I wouldn't feel ashamed of it. I feel like that's a question of when rather than if. And obviously that poses questions about what happens to secondhand sales and sales of the other iPhones and so on. Of course, they sell the two-year-old one for $200 and so on. So they're not touching that, but they're still not touching the middle the market at all. And that puts a kind of a cap on the market. And so there are kind of two questions for Apple. One is like how big is the market for $400, $500, $600 phones? Because it's clearly not the whole market, but we've yet to see it's yet really to stop. And so the speculation right now is like, well, now that they came out with the big screen phone last year, okay, does that a step change?

How much further can they grow? And then the other question is, as cloud becomes important, does it matter that Apple is weak there or will you just be using all Google's cloud services on your iPhone anyway? and then you flip that to Google well let me ask one question before and all the questions are exactly the opposite well let me ask just one question because you mentioned Samsung and the high end of the market

you know what other manufacturers other than Apple have been really good at is lowering the price of these fancy phones so like the one plus two one plus one etc are we going to see pressure on Apple ever are they just so well I suppose that's one way of putting it

another way of putting it would be to say that the Moore's law has taken the price of Android down to $30 or $40 at every point in between. But any, the kind of, as it might be, two-thirds to three-quarters of people who are willing to spend $5, $700 on a phone and get the one that's beautifully made and has a beautiful finish and has the best camera and the best screen. Two-thirds to three-quarters of those people currently are choosing to buy iPhones. And that is currently five, six, six, hundred million people on earth and I've got one of these things and so that seems to be working out just fine for Apple and so there's an argument that says like it will all go to the good enough

product the way it did with PCs there's another argument that says um that's a bit like saying no one would ever buy a Mercedes because you can buy Ford and well actually no people are willing to spend a bit more money to get that and there are enough people who are willing to do that that that you can sustain a market for that product and it turns out that for Apple that market is over half a billion people and we don't know how many more it is because it's still growing. Right. I'll be it growing slower.

Yeah, it's growing slower but this has been the question for Apple for like the last four years. It's like, well, what is the ceiling on the market for high-end phones? Because it's clearly not the two billion, the global handset market is two billion units a year. The market for $600 phones

is not 200 million units a year. But we don't know what it is because it hasn't stopped growing yet. Right, right. Interesting. All right, Google. Google, well, Google. is the opposite of this. So Google builds incredible cloud services and builds it isn't quite so good at building the user interface for them. And necessarily, except

when they're very simple. And their exceptions to both of these. And Google tends to see the device as the end point for the cloud, whereas Apple tends to see the cloud as like the pipe for the device. So like the ideal company would be like Apple and Google combined, because then you have a great device and a great cloud service. The challenge for Google, on one hand, Google is I think completely unchallenged at the moment in the kind of the fundamental business of knowing what everything is in the world and how to find it. At least as it relates to competition with Apple, I think there's a broader question of discovery where I think Google faces a lot of challenges, but that's kind of a different point.

We can come back to that later. So they have, they, so they're kind of core search product is, I think, completely unchallenged, really. Their kind of, their position is completely stable. The challenge that they have on mobile specifically is that what they want in everything is reach. They're not in the business selling Android phones. They're in the business of reach. And the purpose of Android was to get reach. And they don't have the top 500, 600 million people. You know, because I'll say 800 million devices, but people got iPads and iPhone. So there's over half a billion people. And generally it's the best half billion people. That is to say it's a

half billion people who are most willing to spend money, who most value a user experience, who most spend most time on the internet, which is why roughly half of all time spent online on mobile appears to be happening on iOS devices, even though there are way more Android devices out there. and iOS devices, because it skews to a certain kind of user. And so how much of that is a problem for Google? Like, if you're on Android, they know they get a far more data about what you're doing, what you're interested in, where you're going than they do if you're on iPhone and just use Google search and just use Google Maps.

And so you have this kind of question of, well, what kind of reach does Google need and how much does it matter to them that Apple has apparently got a lock on this portion of the market and that, you know, the new Nexus is not going to change that. And, you know, Samsung's clearly not going to do anything that's going to change that. it's not clear how, if anything will change that in this cycle, you know, 10 years, everything will change. So, you know, Google, Apple has a cloud question, but is secure in hardware. Google is secure in cloud and has a hardware question and that it has kind of limited access to some kinds of users. So, and then that leaves us with Microsoft, Facebook, Amazon, and

Samsung for that matter, but these other players who are clearly in the mobile venue and they need to be there, but where are they? Yeah. So Microsoft isn't in mobile. They sold just over 5 million units of Windows phone. They've written the unit down. It's that I would be, I think there's even odds that that product won't exist in a year. So Microsoft and what's actually in Adela did was say this is the end of Windows everywhere. That is to say the idea that Microsoft strategy is everything will run Windows and we will leverage Windows and office against each other.

That's gone. And so you have Office on iPad and you have Office on Android and basically what Microsoft is doing, now is using the legacy core businesses as cashcats in order to try and create new businesses for the future. And so Windows will go free, office will go into the cloud, but then you have to kind of create new connective tissue for the enterprise and so on. Azure will be like a good number two. And so they have to transition away from being the PC company and the Windows company and the office company in a sense because, you know, they miss mobile. They miss this new platform. So they have to become something different.

Amazon failed with a phone. The tablet is doing kind of okay. Again, it's like everybody has their own secure business but wants somebody else's business where, in fact, they're a lot weaker. Microsoft Apple has a secure high-end business but wants cloud and is weak in cloud. Google is the other way around.

Amazon is kind of this is huge e-commerce giant but wants to move outwards and to kind of create new adjacent products and it tends to be much weaker in those except in content. I mean, I think there's kind of an interesting thing in here when you look at Amazon and Google and Facebook though, which is that what Amazon and Google, Facebook all do is look at the funnel. That is to say they look at how is it that you would know that you want to buy this thing. And I sometimes think of Google and Amazon as being a little bit like kind of funnel web spiders

in that they basically wait for you to fall in. It's kind of an unnecessarily destructive medical. But the kind of the reason I say this is like... As a customer, yeah. I don't know if I'd like to think of it that way. Well, but the reason I say that is that, you know, Most people buy stuff on Amazon that they previously discovered existed somewhere else. Yes, there's a bit of browsing, but, you know, by and large, you go to Amazon and already

knowing what you want. And you get, in a sense, you go to Google already knowing what you want. Like, you know, if you want to find a hotel in Carmel, you'll go to Google. But if you want to know, like, where could, well, actually, that's a bad example, because there isn't anywhere to go from San Francisco. But, you know, if you were in, you know, if you were in London, it's like, okay, where should we go on holiday this weekend? Okay, there's 25 or 30 or 40-night beautiful medieval cities you could go to for, $50 or $100. You ask Google, you're not going to get a good answer.

Well, not from medieval cities in the Bay Area. Is that what we're going to? Well, yeah, apart from Berkeley, obviously, which is sort of stuck in antiquated. That's a dig on my home turf. But what I'm kind of go out to get a rabbit hole. The point I'm making is Google can tell you what you want when you already know you want it.

It might get you like a magazine article that says, here are 10 things that you want. But it will not, you can't go to Google and say, like, where should I go on holiday? What handbag should I buy? What lamp should I buy? It's not structured in that sense. It doesn't do qual. It only does quant. And I think it's fascinating of the kind of the piece that I have not written and will probably write next is sort of all the people who are trying to unbundle Yelp.

Because what they're all doing, all these different companies are doing, is giving you not every restaurant in the city but 10 restaurants. And you see exactly the same thing in fashion, which is not, we will not give you the entire catalogue of the global apparel industry. rather we will give you 75 things or 25 things or 10 codes and the point of that is you don't want to give people a search box you want to give people like because that's not helpful to you right if you don't know what you want

if you don't know what to type in and you see the same thing with Apple music giving people 35 million tracks in a search box is not a great user experience giving people 10 billion web pages in a search box which is what Google does is a good experience for some things if you know what you want but if you don't And I think that question of if you don't know what you want is wide open. If you do know what you want, Google is one. If you don't know what you want, I think that's wide open. And that also could be a sort of risk, an area of risk for Google then, too.

If somebody really nails that. It is, I mean, you could make a kind of a deterministic point, which is that you could propose that the state of search and discovery now is a little bit like the state of theoretical physics in like 1880, when, you know, there were just a few little bits to tidy up and then we're finished. And it turns out that's not how it works at all. Let's spin things forward a little bit. What are you looking at next year or in the near term?

Like what's interesting and what are we going to start hearing about and talking about? Well, what's it? Macmill said, events, dear boy. Someone asked the British prime minister in the 60s what was the hard part of being prime minister and he said events, dear boy.

So that's part of it, certainly. You know, the Intel, Microsoft merger and, you know. Yes, yes. That kind of stuff. I think VR is clearly becoming close to mainstream consumer product in the course of the year as cardboard and Oculus and Gear VR and potentially a Moe from Apple and Microsoft's HoloLens and so on. So VR becomes interesting. There's an interesting question here about, you know, is this a $1,500 PC?

And there's quite a lot of people who've got those PCs, incidentally. there's tens of millions of people who've got a PC that can run on Oculus. How important is the difference between what you get on the $1,500 PC and what you get on a smartphone strapped to your head? There is a difference. How important is that difference? On like a five-year view, it seems to me that this is all going to be about smartphones because just Moreslaw will drive this and the graphics and the sensors will get there.

But like, do we have to wait until that? Like, what are the kind of the transitional points that we get there? And there also, of course, there's AR floating around here where both Microsoft has a story and also, of course, we have an investment in Magically, which has a story here, an astonishing story if you have the demo. So the sort of ARVR is interesting. Drones are interesting. All the stuff that gets, IOT, industrial internet, all the stuff that gets built on the smartphone ecosystem is kind of interesting.

Then we get Apple and Google's kind of annual jamborea in the summer and they like set, they've got like a list of 10 things that they could do and they'll do three and that can kind of pull the industry in different ways. And so you're always slightly, it's a kind of a dare sex machina, as I kind of alluded to earlier, that like, Like, if Apple and Google do this, then it will happen. And if they don't do it, then it just won't happen because they control the operating system. So there's that question. And then there's like, you know, as I said, it's not like two years ago when I was, you know, tracking Skype, tracking WhatsApp every day. There's not like a big thing that's blowing up in quite that way. Yeah, I was going to ask you, are there companies that are a little bit on the margin more that we should be keeping an eye and that are you going to be keeping an eye on?

There's lots of companies that are on the margin that I'm keeping my eye on and I'm not going to tell you. about them, but there's not like the kind of, holy crap, haven't you heard about this company? Haven't you seen it? There's not quite that at the moment. I mean, obviously, there are, but not like some big mega trend, which is, you know, it's kind of interesting. It's a sort of a state of where we are in the industry. Well, we will talk to you soon and often again and see if where we're headed is where

you think we're headed. And when you can tell us about these holy crap companies, you better do it. I'll try. Benedict, thank you. Thank you.