Mary, Mary, quite contrary….How will the tech market grow?
Without Bitcoin and blockchain, and shiny cryptocurrencies all in a row?
The most coveted annual PowerPoint presentation in the VC-backed world is hot of the presses — Mary Meeker’s Internet Trends Report for 2019. Ms. Mary presented her report onstage at Vox/Recode’s Code Conference in Scottsdale, Arizona, on Tuesday, June 11, 2019. (See video clip below of her presentation).
This year Ms. Mary published her report under her new, independent-of-Kleiner Perkins, late-stage fund moniker, Bond Capital. Bond describes itself as a global technology investment firm that supports visionary founders throughout their life cycle of innovation and growth. The fund’s founding partners boast that combined; they have backed industry pioneers such as DocuSign, Peloton, Spotify, Square, and Uber.
Getting right to the point, it shocked us last year that the phrases ‘blockchain,’ ‘bitcoin,’ and ‘cryptocurrency’ were not mentioned ONCE in Ms. Mary’s Internet Report. The fact these innovations are still not mentioned in this year’s 334-page missive as well is confounding!
Note: Ironically, on slide 244 of this year’s report, the class “Bitcoin & Cryptocurrency Technologies” is mentioned as one of the most popular online courses offered by the booming online education brand Coursera. One might have thought that this simple but significant indicator would have given Ms. Mary at least a hint that something might be going on in this sector ;)
A $3 trillion market opportunity by 2030
Ms. Mary originally sharpened her trade as THE technology industry analyst for the venerable Morgan Stanley responsible for providing institutional investors and investment banking clients the Big Picture based on the data. In that spirit, let’s look at some of the most recent projections for the blockchain-related markets' growth.
International Data Corp projects that total corporate and government spending on the blockchain should hit $2.9 billion in 2019 (an increase of 89 percent over the previous year), and reach $12.4 billion by 2022.
When PwC surveyed 600 execs last year, 84 percent said their companies are involved with blockchain.
IBM is forecasting that annual worldwide blockchain revenue will top $60 billion by 2024.
A recent forecast by Gartner says that by 2025, the business value added by blockchain will grow to slightly more than $176 billion, then surge to exceed $3.1 trillion by 2030.
Ms. Mary, we adore you, but you bet on ‘innovation and growth’ for a living. Please help us understand why you can’t see how the emerging ‘blockchain metaphor’ and the highly disruptive new business models it represents will be the primary innovation engine (along with AI) that will fuel technology industry growth next 20 years.
The rise of ‘Trusted Networks.’
While still in Alpha, blockchain technology represents a new security infrastructure for the Internet, based upon a public, decentralized, and distributed computing model. One could say that we are the precipice of finally delivering on the original promise of the Internet. The early evangelists of the commercialization of the Internet were on a mission to decentralize institutional power by establishing a free-wheeling global network with no central administrator. In particular, the PC industry was jonesing to topple the Almighty Microsoft and the ‘Wintel monopoly.’ After achieving this goal, the new Goliaths Amazon, Google, Salesforce.com, Alibaba, and Tencent and other central administrators came marching on to the scene.
While we largely achieved the democratization of information, the fractionalization of the power and influence in mainstream media, and enabled a more peer-to-peer sharing economy model, we still face major challenges in the areas of privacy, security, and the rise of fake news and disinformation. Happily, as history has demonstrated over-and-over, whenever new problems arise, a set of pioneering entrepreneurs reliably appear on the scene and take these challenges head-on.
When the little guy got screwed in the last financial crisis in 2008, an unknown author under a pseudonym name Satoshi Nakamoto published the Bitcoin whitepaper in October 2009 and created the first significant blockchain app called Bitcoin. Since the creation of Bitcoin, a whole new generation of entrepreneurs have embraced the new blockchain model and are ready to rewrite how we operate online all over again. This model is based on five very distinct and culturally timely blockchain model qualities:
Encrypted — The translation of data into a code is only accessed and decrypted by a secret key or password as a highly effective way to achieve data security. On a blockchain, the users' identity holding these keys is concealed behind powerful cryptography, meaning that linking public addresses to individual users is particularly difficult to achieve.
Distributed — A model where components of a software system and data storage are shared among multiple computers, which increases security to prevent data breaches and enhances performance and availability.
Immutable (Permanent) — The blockchain’s decentralized, distributed, and public digital ledger-based model means that transactions are recorded across many computers. Therefore the record cannot be altered retroactively without altering all subsequent blocks, which requires the network majority's consensus.
Proof-of-Work (PoW) — PoW is the original consensus algorithm in a Blockchain network. This algorithm is used to confirm transactions and produce new blocks to the chain. With PoW, miners compete against each other to complete transactions on the network and often get rewarded with digital tokens; and makes this work much less costly and time-consuming than traditional data processing. This responsibility bears on special nodes called miners who can live anywhere on the planet, and this process is called mining.
Transparent — The transparency of a blockchain stems from the fact that the holdings and transactions of each public address are open to viewing. Using an explorer and equipped with a user’s public address, it is possible to view their holdings and the transactions that they have carried out.
The bottom line is the decentralization of data storage and ownership promises to dramatically upend the status quo, cutting out intermediaries and centralized platforms and replacing them with peer-to-peer transactions executed via ‘smart contracts.” In other words, the blockchain represents a global Declaration of Independence, whereby we can create ‘trusted networks’ with no central system authority and control and claim our individual rights for privacy, speech, and ownership of our online data.
Our view is the blockchain model represents a poetic match with the rising anti-institution, populist movement breaking out all over the planet. Bitcoin was history’s first permanent, decentralized, global, trustless ledger of records where privacy and transparency effectively coexist. We predict that we will spend the next 20 years re-writing most every way we conduct business onto millions of smart contract-driven trusted networks. We witness a radical dissipation of institutional power that comes with that disruption.
The most immediate impact of the blockchain revolution is in the financial world. The level of transparency blockchain offers never existed within the financial world and will usher in a super high degree of accountability that has never been possible before.
The second area of impact will be supply chain management, one of blockchain’s foremost use cases. Future supply chains of all shapes and colors will allow immutable tracking of anything across their supply chain. For example, consumers will know exactly when and where the food they buy was produced and shipped, what their food contains, and whether it is organic and fair trade. Ditto when you buy a car, where you will be able to view the entire service history and ownership of any car.
The list of powerful use-cases is endless. Blockchain analytics company Amberdata.io reports that an average of 15,000 new smart contracts is created on public blockchains every day. Of course, many of these projects are experimental, but we think you get the point, and we hope Ms. Mary also does.
Highlights from the Internet Trends Report
Omissions aside, the Internet Trends Report is chock-full of amazing data as always. Here is what we saw as some of the highlights:
- Global Internet user growth slowed in 2018 to 6 percent compared to double that (12 percent) just two years ago in 2016. Current user numbers reached 3.8 billion representing over 50 percent of the world population. Percentage-of-user-wise: China 21 percent, India 12 percent, and Uthe SA 8 percent.
- Smartphone growth declined -4 percent in 2018 despite average unit sales price declines and rise in camera functionality, power, data use, and WiFi reach.
- 28 percent of American adults now report that they go online “almost constantly,” up from 21 percent in 2015, according to a Pew Research Center survey conducted Jan. 8 to Feb. 7, 2019.
- Online sales grew a solid 12.4 percent — Conversely; physical retail sales continue to decline. E-commerce inched up to 15 percent of retail sales versus 14 percent last year.
- Amazon’s dominant share of e-commerce grew to 28 percent in 2017 versus 20 percent in 2013.
- 50 percent of day-to-day transactions are now conducted online.
- Annual Internet ad spending continued to accelerate +22 percent vs. +21 percent in 2017. Other Internet ad platforms are gaining ad share on Google and Facebook, especially Amazon, Twitter, Snap, and Pinterest.
- While Internet user growth is slowing, global innovation & competition continue to drive product improvements, new types of usage, and monetization — especially in digital video, voice, wearables, on-demand + local services, and traditionally underserved markets.
- Context-rich data provides businesses and consumers with increasingly personalized and often cheaper products, and services delivered more efficiently. This, in turn, drives higher customer satisfaction.
- Gathered and analyzed digital data is often the core-driver to the holistic success of the fastest growing and most successful companies today.
- Better data-driven tools can improve the ability of consumers to communicate directly and indirectly with businesses and regulators.
- Social media platforms are increasingly leading to product discovery and purchases. Share of social media-driven e-commerce referrals stood at 6 percent in 2018, up from 2 percent in 2015.
- Mobile video adoption continues to grow rapidly, fostering new content types like Twitch, which features its most popular game.
- Daily hours spent with digital media per US adult continues to accelerate. In 2018, time spent rose 7 percent to 6.3 hours a day, with 3.6 hours on mobile devices.
- Podcast listener mobile app uploads (MAUs) were 70 million in the US in 2018, up 2x over the last 4 years.
- The number of people using wearable technology is also up to 52 million in the US; a 2x boost over the last 4 years.
- Owing to social media amplification — reveals/actions/reactions — events can occur quickly, resulting in both good and bad outcomes. In markets where real-time online rating systems exist, accountability can be improved versus offline options as consumers can now communicate directly, peer-to-merchant.
- Online subscription growth is up driven by selection, personalization, and ease of use.
- More consumer focus and increased spending on health care. Meeker asks: ‘Will market forces finally come to health care and drive prices lower for consumers?’
- Consumers are aware of concerns about Internet usage overload and are taking calculated steps to reduce their usage. Leading USA-based Internet platforms have rolled out tools to help monitor their online time. For the first time, social media usage growth appears to be decelerating following a period of strong growth.
- Privacy and problematic content concerns are also top-of-mind and are following similar patterns. The percentage of people concerned about online privacy declined from 64 percent to 52 percent versus a year ago.
- A new study from the Pew Research Center shows that over two-thirds of U.S. adults (68 percent) get their news on social media. Still, out of that population, over half (57 ) of these consumers say they expect the news they see on social media to be largely inaccurate.
- As Internet systems become increasingly sophisticated, data-rich, and mission-critical so has the risk of cyber-attacks.
- We are in a new cybersecurity era where technology issues are increasingly intermixed with international diplomacy and defense.
- 23 of the most highly valued public companies by market capitalization are US companies
- The top 9 US technology companies employ 1.9 million people.
- China is home to 7 out of the 30 of the biggest Internet companies by market cap.
- China represents 53 percent of all global Internet users, with only a 48 percent user penetration rate. Conversely, the US represents 9 percent of all Internet users but boasts an 89 percent penetration rate.
- First or second-generation immigrants found 60 percent of the most highly valued tech companies in the US. Google, PayPal, Uber, Tesla, Nvidia, Qualcomm, Cognizant, VMWare, WeWork, and Wish all have first-generation founders.
- The number of “on-demand” remote workers in the US topped 6.6 million in 2018, representing a +22 percent increase over 2017 (5.4 million).
Mary loves Facebook — Where was her love for Libra
As we read over Ms. Mary’s report, we were left dying to add a couple of slides on how blockchain applications can solve the consumers’ greatest fears outlined in the report, including invasion of privacy and cyber-attacks. We were also amazed that there was no mention of Facebook’s Libra project, given how long and how much Ms. Mary has been following Facebook (the Facebook-related brands are mentioned over 60 times in her report).
Libra is Facebook’s proposed permissioned blockchain digital stable currency. The plan is for the Libra token to be backed by financial assets such as a basket of currencies to avoid volatility and offer an easy and cheap way for the company’s 2.5 customers to conduct commerce in a direct peer-to-peer and peer-to-merchant anywhere at any time. David Marcus, who is spearheading the development of Libra and the Calibra digital wallet project at Facebook, has said the currency would be “a more efficient, low-cost and secure alternative” payment tool for people who can’t afford to transfer money using traditional methods. We are on record as saying that.
In the spirit of the age of decentralization of power, Zuck is proposing that the project, currency and, transactions be managed and cryptographically entrusted to the Libra Association, a membership organization founded by Facebook’s subsidiary Calibra and 27 others across payment, technology, telecommunication, online marketplace, venture capital, and nonprofits.
The Libra project faces many regulatory challenges. As expected, Libra has drawn significant scrutiny from governments and regulators in multiple jurisdictions, and we can bet this intense scrutiny will continue. Facebook admitted to investors in its latest quarterly report that while it expects to launch its Libra digital currency in 2020, many factors could keep that from happening.
JPMorgan analysts Joshua Younger acknowledges both the regulatory and technical risks but still believes in the viability of stable coins. “Libra, in particular, have the potential to grow substantially and ultimately shoulder a significant fraction of global transactional activity,” he says.
Our take on all this is Facebook is the perfect ‘gateway drug’ to introduce billions to cryptocurrency, and Facebook will be hugely rewarded for taking the crypto jump. Unless Amazon jumps into the market with their own sometime soon, we believe that Facebook’s stable coin could be such a big hit, it could catapult the company to the most valuable franchise on the planet. No matter the outcome, Libra is a much-needed validation of cryptocurrencies and blockchain technology as the financial infrastructure of the future. Less than one billion out of the 7.6 billion people on our planet have access to the modern economy. Given that one-third of the world logs into a Facebook-related brand, we are on record as saying that the Facebook stable coin could dramatically impact bringing a billion new people from 3rd world countries into the modern economy. This single act could end up being the greatest economic achievement in history.
There’s something special about Mary
We have no doubt that Mrs. Mary and her new fund Bond Capital will be hugely successful. We are as equally certain that she will continue to crank out her annual Internet Trend Reports for her loyal herd of sheep. But we are hoping — and even betting — that when we get our hungry little hands on her 2020 Report, the terms “bitcoin,” “ blockchain,” and “cryptocurrencies” will be scattered through-out. Most importantly, all these mentions will come with Ms. Mary’s wisdom and insight into what all this crazy crypto stuff means in the Big Picture and which horses she thinks will win the race. We can’t wait.
