June 3, 2016: The publication of analyst/investor Mary Meeker’s annual survey of macro internet trends is a ritual event among the digirati. Meeker has been putting these presentations together since the mid-1990s, first for Morgan Stanley and now for Kleiner Perkins, a prominent Sand Hill VC firm. Here are the highlights for this year’s report:
1. Flattening global internet growth
Year over year growth of internet usage held steady at 9 percent. Currently, 42 percent of the world’s population is online, a remarkable feat for a medium that is just 20 years old. But flattening growth curves and rising penetration rates are a concern for companies such as Google and Facebook, whose fortunes have historically been buoyed by connection rates in the double digits. There is also some doubt whether the unconnected 58 percent of the world’s population — mainly residing in the developing world — can be monetized as efficiently as early adopters. For example, while 60 percent of Facebook’s users live outside the U.S., they account for only 25 percent of total revenues. ARPU (Average Revenue Per User) in the U.S. and Canada was $9.30 in 2015, but only $0.90 in the rest of the world — that’s more than a 10-fold difference.
2. The mobile device boom is ending, but mobile ad spend is booming
Global smartphone sales growth — while still robust at 21 percent — is down from 2015’s 31 percent growth rates, with growth in smartphone shipments diving from 28 percent to just 10 percent. But mobile advertising, which in 2010 practically didn’t exist, now accounts for 35 percent of Internet advertising, and rose 66 percent over 2015.
Facebook made 80 percent of its revenue from mobile ads in Q4 2015; and while Google doesn’t break out mobile vs. desktop revenue directly in its reports, a Forbes report estimates that mobile currently accounted for 37 percent of Google’s $20 billion ad revenue in Q1 2016. Competition between these two giants in the mobile ad space will continue to heat up to capture this fast growing revenue stream.
3. Ad blocking, security concerns mean more trouble ahead
For the first time, Meeker mentioned ad blocking as a specific threat to the ad tech industry, citing PageFair’s alarming numbers about ad blocking that we’ve discussed here on this blog. Obviously, if mobile ad revenues are rising 66 percent, but ad blocking rates are rising 90 percent, ad tech is headed toward a brutal intersection of these two trend lines.
Also, for the first time, Meeker identified fears over privacy and internet security as negative factors that may impede internet commerce and advertising, as well as social sharing. Citing data from the National Cyber Security Alliance Consumer Privacy Survey, she noted that 45 percent of internet users are “more worried about their online privacy than one year ago, and that 74 percent “have limited their online activity in the last year due to privacy concerns.”
Should you believe her?
Mary Meeker is a controversial figure in Silicon Valley given her dual role as analyst/trendspotter and investor. She’s been criticized for promoting trends and companies in her reports, not because they necessarily embodied a bona fide”internet trend,” but because her firm has placed bets on them. And her presentations — while purporting to be comprehensive — often leave important trends out (although she always manages to catch up with them later). Lastly, her objectivity has been called into question in several lawsuits alleging biased research, although none of these lawsuits was successful.
Still, her annual reports are always thoughtful and the data she cites is hard to contest. Which makes her latest compilation interesting reading for those seeking insight into what’s going to happen tomorrow.
You can read Meeker’s complete presentation here:
http://www.kpcb.com/internet-trends
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