a16z Podcast - a16z Podcast: What Comes After the Smartphone

Episode Date: October 22, 2015

Technology is a progression of new ideas and new platforms gobbling up the one that came before. In the world of computers we went from mainframes to mini computers to PCs. And then came the mobile phone, which, in the form of the smartphone, has dwarfed them all. But what does that to mobile? When you have already gotten to everybody on earth, what comes along that is 10X the size? a16z’s Benedict Evans and Steven Sinofsky offer their thoughts on where technology is today, why the perfection of the current crop of PCs signals the category’s collapse, and what happens after the smartphone.

Welcome to the A16Z podcast. I'm Michael Copeland. Technology is a progression of new ideas and new platforms gobbling up the one that came before. In the world of computers, we went from mainframes to mini computers to PCs, and then came the mobile phone, which, in the form of the smartphone, has dwarfed them all. But what does that to mobile? When you have already gotten to everybody on Earth, what comes along next that is 10x the size? A16Z's Benedict Evans and Steven Sinovsky offer their thoughts on where technology is today and what comes after the smartphone on this segment of the A16Z podcast.

Stephen Benedict, welcome. Hello, hello. Let's talk about the reception of two devices that recently launched and what that says about how technology works and how technology changes. First, there was iPhone success, and there was this sense, you know, poor Apple, everyone's so excited and expecting so much. And then in the case of the success, there was this sort of sentiment, oh, the beauty's all on the inside. Isn't that sort of boring?

And then on the flip side, Microsoft launched its latest surface, and the tech community broadly kind of applauded it for moving technology forward. Like how great. Look at the innovation. Things are moving forward in a way that gets us all excited. There's the magic. So looking at these two devices, what does that say about where we are in technology and where we're headed? Well, there's kind of an interesting contrast here that you've got, sort of the feeling you have in mobile right now is we're kind of at the end of one wave and we haven't got another wave coming up yet.

So we've kind of had the smartphone wars and Apple and Google both kind of won and we've had the messaging wars and Facebook and WhatsApp and Instagram and so on happened. And there isn't some new thing. and you look at the new flagship phones from Apple or Samsung or Xiaomi or what have you and they kind of look like the last year's phones and so that feels like we're kind of on a flattening part of the S curve and then you look at you know the iPad Pro or the surface or Chromebook and what have you and it feels like there's a lot of stuff kind of changing here and it's like wow this is a completely new way of doing things and except of course for you know laptops which are probably not a terribly new concept so you've got these kind of interesting contrast

between where the innovation sits and how you should think about well where is which bit of these which of these sit in which part of the curve and the way I suppose the way I tend to think about this is there's a um the things tend to look best and they tend to look most refined and they tend to have all the really coolest stuff just before they're about to be completely obsolete and so you get absolutely the best sailing ships at the end of the 19th century and you know the best battleships are built in 1945 and you know absolutely the best ever spy planes are built just before satellites come in and make spy planes kind of pointless or one kind of spy plane pointless if you spy planes that don't have missiles on them become

right that circled endlessly for hours and hours and then eventually got shot down yeah exactly and so it looks like okay oh now finally this thing is perfect so you look at the surface pro and you think okay at last the PC has been perfected it's got everything you could possibly want this is it is one. And then in contrast, kind of you look at the smartphone and you think, yeah, this is kind of boring, nothing much new is happening here. And you could kind of look at it the other way around, I think, that what's happening in the kind of the PC world is it's being perfected because it's kind of over. Right. So let's be clear, you're calling the end of the PC world. Yeah. And in contrast, the smartphone world is kind of only just going. And that what's happening is,

like we've built the platform and now you get this explosion of innovation on top of that platform i think that's the for me that's the the definitely the most the most key thing that's really going on is that people have to internalize like where how platforms innovate and diffuse and how where they go from from one stage to another and so what what's happening in mobile is the underpinnings have started to started to solidify and i wouldn't say boring but i think that they've become like predictable in the sense that you're going to get more capabilities, more sensors, better battery life, you know, more interesting, thinner, smarter devices and things. And they will get better. And we will someday reach this

point where there's no way you could perfect that particular, you know, six-inch form factor or something like that. But what's really happening now is the innovation has just moved up the stack. And now you're just going to start to see like constellations of innovation. Benedict mentioned messaging. And that was certainly one where there were dozens and dozens of companies and new ones all the time. But now there's a center of gravity that's very substantial. But playing it forward, you know, it's not like banking has been settled. It's not like entertainment's been settled.

It's certainly not like productivity has been settled. But the activity is massive building on this stability. In fact, one of the maturing stages of the PC was when the web came along and started being innovative across all of the PCs. So I wrote a piece the other day called sort of the smartphone is not a neutral platform saying that, you know, unlike, say, a web browser on either a Windows or a Mac, where the web browser was the platform and the Windows or the Mac computer wasn't really where you were building Internet services, whereas on a smartphone, not only you're building

in the web browser and inside apps, but you've got all this other stuff going on that Apple and Google are building integrated services deeply into it. So you've got all this innovation happening in how you're going to use the device. But the device itself is kind of set. Like now we know, okay, it's roughly the size, it's got these capabilities, the performance, has grown to the point that you can do all these things you wanted to do three years ago or four years ago but can't do the battery life and the location and so it's all there. So you've got this kind of Cambrian explosion of innovation on top of the smartphone now that that's become like a relatively solid platform where you kind of know what you're

dealing with and all these things have become possible. Does that then shift the center of power or the centers of gravity? I mean away from Apple and or handset manufacturers in general. Well, I think there's a kind of a fundamental change going on here, which is that there are something like 300 and 325 million PCs sold a year and there's about one and a half billion PCs on earth and there are about one and a half there are about two billion mobile phones sold every year and almost all of those will become smartphones in the next couple of years or well over a billion are now and so we'll go to 2 billion smartphones if you add in tablets maybe 2 and a half

as opposed to 300 million PCs and we'll go to 5 to 6 billion of those in use in any given time around the world although you know in use depends on how much money you've gone where you are and so on. And so you get to this ecosystem that's just in order of magnitude bigger. And of course, that's happened before. So you went from mainframes to mini-computers and you went from mini-computers to workstations

and workstations to PCs. Yeah, actually, let me just put some numbers so that people can understand like what we're really talking about. Like the mainframe world, the whole world of mainframes was probably less than 100,000 mainframe computers. Actually, kind of an interesting stat

was that they didn't use it to measure mainframes in terms of like actual boxes. They measured them in the MIPS delivered. And so IBM used to be measured, like, how many MIPs are actually in use at any given time. And so at the height of MIP utilization, there were about 11.1 million Mips, like, active, like, on the books, which is roughly 200 Macbooks. And like, you think about that, and you're like, wow, that's crazy. You know, there were about, like, at the height of word processors. So this is before there were, like, software word processors.

there were these things you would buy for typists in an organization that were dedicated. And they were from companies like Wong or Sperry or things like that. There were maybe 500,000 to a million of those in total. And most of them in the government. Like it was sort of like a 1984 image. And then, you know, the mini computer. So there were maybe just over a million digital equipment mini computers. To Benedict's earlier point, if you were using a digital equipment Vax computer in like 1988, 89,

they came out with the new the last version of VMS software and it was the most amazing thing you've ever seen they had you whatever programming language you wanted to support they had full support across the platform they had distributed systems they had the best shell they had like the best tape drives and disc drives and peripherals it was and it was all it fit together there's this beautiful poster i used to have in my office of all of the parts and then nobody bought it like in fact they just they evaporated like seemingly overnight because it was over the people it already showed up. There were about 5 to 6 million Apple 2s that ever got sold. That I believe. Wow. But here's interesting one. There were about 17 million Commodore 64s. Why is that? Because it broke into the sort of the den and the living room, not just like the garage and the office. And then Ben, as it gave the PC numbers, maybe, you know, now we're at a 1.5 billion installed base. What was the number for how many have ever been sold? I think you computed. About four and a half billion from memory.

Ever, you know, and then the smartphone, the numbers. And so the interesting thing is, for each of those, they, they didn't sell, like, the first people to buy minis weren't the people who bought all the mainframes. They were all the people who didn't buy the mainframe. And for the people who bought, like, the PCs, they weren't all the people who bought everything that came before. In fact, the first ones, I had a job. I was to go and give them to the people who didn't have word processors. Like I carted them around. And they were happy to get them, I'm sure.

And the people who had WordPress has said, well, I have to use this to get my job done, and I'm not using that. That's a toy. Right. So what you're talking about, though, is this phase then after the phone, and that's what you're starting to imagine. Well, I think what, like, we were sort of pondering was, like, what do you do to sell the next thing? Because everybody's got the device. Where's the market that's more than the phone? Because to Stephen's point about, you know, who it was that you sold to, you didn't create the PC industry.

by converting mainframe customers, you created that by building this new industry that was a hundred times bigger, and that left mainframes and minis and workstations just completely marooned. And that is now what is really what's happening with mobile. It's that, first of all, mobile becomes much bigger than PC, but PC continues in parallel. Then, mobile leaves PC marooned, and maroon PC will kind of start to shrink away to a much smaller base over time. But what does that to mobile? What comes along that's 10x bigger than mobile?

that is your next generational change when you've already got to everybody on earth. So there isn't another generational change of that kind. It has to work in some other way. Do you think that that has to happen? I mean, given the history of technology and how we do things, is there going to be another thing

that can be 10x bigger than the phone? Well, of course, one of the things that's going to be interesting is all of the software that gets written on top of these. And so that itself is, it already is 10x big. And maybe that's the thing then. Right. And so what I,

For me, what's so fascinating is that don't think about the platform shift and the revolution. We tend to manifest it in terms of the physical device. And we think about it as the shape or the size, which leads to all the confusion over tablet or this or that. And like Benedict loves to point out, like the huge shift in the supply chain that's really going on. So one of the things is like IoT is going to be bigger. There are definitely going to be more of these devices that are IoT. But how are those going to get built? on what ecosystem and how are they going to...

Well, mostly they're going to be smartphone components. So not when you get down to, you know, the 10-cent device or the 5-cent sensor and what have you, but an awful lot of this stuff is actually smartphone components. I mean, it's obviously like a thermostat or a drone or all of those kinds of things. They're basically just smartphones with wings. And how is it going to get online when you're in your home?

How are you going to control this stuff? What's all going to be connected up to? It's kind of going to be connected up into the smartphone ecosystem. So it's not immediately obvious that I, IoT creates this whole separate ecosystem that you can use to create new, bigger companies that come in and crush Apple and Google and, you know, Samsung and Arm and Qualcomm and so on. It feels like those are kind of extensions of this business rather than, you know, the next generation that's much bigger.

You can imagine in the IoT future that instead of, you know, one or two phones per person, it's 10 things per person or 20 things or 100s, right. You won't even know, and we won't count how many, even how many screens we have, But I would definitely say that the stitching them together, it's definitely going to happen via the cloud. There's going to be a notion of identity. There's going to be shared experience and coding because there's only so many operating systems

people are going to do things for. But also, like, they're not all going to be self-contained. Like, your light bulb is up in the ceiling. You're not going to have 15 ecosystems in your home and 15 gateway devices. You're going to have, like, maybe three, and a bunch of overlapping Venn diagrams. But, yeah, the light bulb is going to talk to the phone. or the thermostat or something.

And your light bulb's not going to have a screen that I program it on either. Not only that, you're not, and you're not even going to, like, buy this light bulb kit that comes with a separate screen that they all connect to. Which is kind of where we are right now, right? Right now. We're in the kit mode. You're in a kit mode. You go by a door lock, and, like, it might have an app, but it's likely to connect

to a special hub that that door lock uses. Yeah, my garage door opener came with, like, its own router hub thing. Yeah, it's like your home is got AC and DC, and you've got 110, volt and 240 volt and 5 volt in different bits of your home for different stuff and you need different plugs. Well, actually in America you do have different plugs. But I think what really people

are also underestimating is just the and why we're so so bullish on the growth opportunities are just the opportunity to build whole new ecosystems on top of all of this. Back when the PC was taking hold, the debate was over operating systems

and then graphical interfaces. And, you know, people underestimated the impact of just having office on PCs, which created a whole, almost a separate, a whole separate layer in the whole ecosystem that was equal in size to the operating system. The same thing happened on mainframes. Like, the mainframes were interesting, but really look at Oracle and the databases that got created. And then once Oracle got created, you look at the SAPs of the world. And then what happened in the web is the same thing. Like, you end up with these whole new companies built on top of that infrastructure, which often dwarf the infrastructure. And I think, you

that the iot space is going to be huge but it's going to not necessarily be like a whole new one like a whole new thing it's just going to be built on top of this framework which is going to be very empowering for that whole ecosystem starting all the way at the people who make arm chips all the way through the supply chain through the phones and those companies are going to be in the position to drive the kind of software support that people have and create it and as benedig was pointing out the services that you use are going to be sort of integral to the whole experience because if you make like garage door openers or light bulbs or control things, you're not, there's a lot of stuff you're not going to know how to do.

And so relying on that is going to be super important. I think there's a kind of a thread that runs through this, which is this sense of the UK system that, you know, in the 80s or 90s, if you wanted to put computer into something, you used PC. You know, if you had an ATM or, you know, a kiosk or a piece of machine tool or something, it would be running a PC in some sense. They're like the 3 million ATMs on Earth all run Windows XP until quite recently. And today you wouldn't do that.

Today you'd use mobile components instead of Intel components and you would use a smartphone operating system. So you'd use Android or, you know, if it's in the Apple ecosystem, it would be connected into iOS. And that whole ecosystem, it just becomes much bigger and just leaves, swamps the other ecosystem in terms of where all the innovation and all the scale effects can be. So just, you know, sort of kind of an unfair but relevant comparison,

you know, the Intel ecosystem now as a percentage of total computing, so including tablets and smartphones and everything else, is now sort of 15% of unit cells and it's going to go down it's going to go maybe not 10% but you know it may go down to 10% and that's kind of where PowerPC

and Mac OS were in the early 90s and you get the same kind of effect of you know people making a decision about where they're going to put their investment and you know where all the innovation is going to get centered it's all going to get centered into that new ecosystem and so back to the thing I was saying at the beginning about you know look at the Surface

Pro or the MacBook or the so you look at the the Surface Pro and you put the iPad Pro and you put the MacBook, the new Apple MacBook next to it, and you put like an iPhone 6S and you put like a Lumia next to it. And of course, because that means that I mentioned Illumia is because you can plug a screen

and a keyboard and a mouse into it and it's running Windows 10. So theoretically that's, well not in practice that is actually a PC. Right. And so it's like a Lumia is almost like a Mac Mini with a screen. You know, it's basically the same thing. Right. With a screen and a battery. So you look at all these things and you get these industry

analysis firms going, well, that's a tablet and that's not a tablet, that's a PC with a removable keyboard. And that's a smartphone with a removable keyboard and it's like, you can put all these definitions together, but actually the only distinction that's meaningful between them is, well, which of these are based on the future and which of these are based on the past? Or which ecosystem are they on? Or which ecosystem are they on the ecosystem that has all of the scale and all of the growth and where all the innovation is going to be focused, whether that's the chips or the software or everything else? Or are they on the ecosystem that really kind of doesn't have that anymore and is kind of get left behind,

which is, you know, to my point about, you know, the best ever sailing ships being produced at the end of the 19th century, you know, that's kind of where something like a Surface Pro is next to the iPad Pro in that, you know, the first sailing ship, the first steamships needed masks and they kept breaking down and, you know, people weren't quite sure how to build them and they kept sinking and so on. But that was kind of on the upward curve. And the sailing ships, on the other hand, were much better and much faster for about, you know, for a little bit longer, but they were on the flat part of the curve. And I think this is kind of where the whole, like, X-86 Windows architecture is.

You know, that whole environment is like it's perfect, but that's... But it's reached its... But think of it this way. Like, you're just an innovative electrical engineer or mechanical engineer, and you develop a way to sense something in the environment. It doesn't matter what it is, but you need the rest of the compute platform to do something. Are you going to go and pitch it? like which chip manufacturer do you want your sensor to be tightly integrated in?

Like it's not just a unit sales, it's the chip manufacturer that has the health to absorb it at the software level, the firmware level, the integration level. And this is, you know, Ben had mentioned the power PC. And this is basically what happened to Apple. It's like it was just too small to support the innovation at the scale needed to compete with what was going on at Intel. And like, there just weren't enough electrical engineers designing chips to be competitive. So let's be clear on this, then let's set aside the platform of the past and the perfection of the PC has arrived and therefore its end. But the platform of the future, what are the, who are the players and the components that make that up? And then where do startups then best fit into that platform of the future?

Well, there's a stack, and it depends which part of the stack you want to think about. So you work up from the bottom with Arm and then all the licensees around Arm and the people who make chips for Arm. and then you have Qualcomm and SpreadTrum and MediaTech who are packaging that up so that people who don't know anything about cellular technology or semiconductor design can still create phones. And then you have the whole Shenzhen ecosystem and it's quite unclear how that's going to play out

and whether there will be kind of equivalence of Dell HP Compact and so on who kind of become the global scale players or not. You know, the future of Android is very unclear. But then you have the kind of the software ecosystem on top which is Android and iOS. and, you know, in contra-distinction to what we were just saying about scale, the Apple ecosystem has 700 to 750 million active devices at the moment, and it has two-thirds of out-store revenue, and it has roughly half of web traffic,

so it has sufficient scale to attract development. Which is the first time that we have two ecosystems. Yeah, it's the first time we have two winners, in effect. And then you have, so you have the Apple ecosystem and the Android ecosystem next to each other, and they've created this platform, and then you have, as you go further up the stack, You have then Google creating discovery and Facebook creating social and discovery and all sorts of other people trying to create other kind of ways of value on top of those. And I think certainly at the start of space and particularly for enterprise computing or business computing, which is sort of a very understandable innovation space. You know, there's people actually buy things.

Well, they buy it and there doesn't appear to be like a magic step of like go to 100 billion user kind of thing. And, you know, you've got, like, all of this innovation that you have to do to solve all these business processes and business innovation challenges on top of this infrastructure, whether it's AWS or it's Azure or it's Google Cloud. They all provide this fundamental scale that you can't do on your own, but that's just going to enable a whole bunch of innovation where having these two stable points of iOS and Android are super helpful to allow this to happen. And that is exactly what happened in the PC era. Like once Windows and Intel sort of stabilized, that itself enabled the web to continue to exist because it gave, you know, targets for the browser, targets for graphics drivers and video and all of that to happen. And so we're at this sort of golden age where now if you start a company that the level of uncertainty about like even where to begin is much lower than it was even a year ago. You have this massive thing to plug into if you if you can and if you build the right thing. That thing is not likely to be a PC, perfect though it may be, and a battleship in Benedict's parlance.

But it'll be that thing that comes after the smartphone. And I have to say, I'm really excited to see how this plays out and what can possibly top it. Stephen, Benedict, thank you. Thank you.