Tuesday, June 02, 2015

Checking Out KPCB Internet Trends 2015

I spent some time poring over Mary Meeker's recently released KPCB Internet Trends 2015 report.  The data reveals surprising growth potential in countries with low per capita GDP but strong smartphone penetration.  Smartphones are not yet a mature, low growth market like desktops but that threshold draws closer by the day.  Telecom and computer companies are thus wise to pursue the next big things in smartwatches and IoT.  There may be other big surprises ahead.  Here come my own guesses.

Drones probably belong in the IoT category.  Their affordability and loiter persistence enable operators to maintain daily coverage of some area with a very small fleet.  Farmers and miners may need no more than one drone for regular aerial surveys.  Anyone with persistent security needs for high-value properties will need no more than two or three for 24/7 coverage.  The strongest profits for drones won't be in manufacturing, because a drone's per-unit cost will drop rapidly with adoption just as the cost of PCs dropped in the 1980s.  The big bucks will be in cloud storage and data analytics for the millions of hours of video with embedded data that drones will generate.

The KPCB report is largely silent on wearables, another emerging IoT category that many people pretend to understand.  Measuring smartwatch usages in instances is only one way to capture their value.  Users will ultimately expect their smartwatches to do things their smartphone cannot do on its own.  A watch face's form factor limits its display capability to no more than six items:  a main icon (i.e., the equivalent of the time function), four very small icons (calendar date, etc.), and the background color representing something else.  I remain convinced that successful smartwatch apps will have little to do with games, email, messages, or notifications.  The winners will have a lot to do with biofeedback because the smartwatch, unlike the smartphone, is worn touching human skin all day.  Real-time health data is an untapped market.

Every analyst chasing perpetual growth from in-app shopping and advertising always forgets the economic cycle.  Even the most publicized analysts have trouble learning from experience.  Advertising is the first expense businesses typically cut in a recession because it loses its power to drive sales.  Campaigns pushing inventory clearances and discounts will continue to work well for high-margin businesses but will only compound the problems for low-margin businesses.  The good news for the ad sector is that the less effective channels like desktop ads will see cuts first.  If mobile ads are truly more effective at driving frictionless conversions, they will be cut last.  I am not aware of any ad channel that escapes cuts completely in a recession.

I will never forget the bullish talk that preceded the first dot-com bust in 2000.  Forrester Research led the lemming parade, investment bank equity analysts followed, and retail brokerages brought up the rear as they swept their sucker clients into Internet-themed mutual funds.  The impending bust in Web 2.0 companies will be just as much fun to watch from the sidelines.  Clearing out the debris will leave capacity for the next round of IoT plays to run.