Mary Meeker’s 2018 internet trends report | Code 2018

🎥 May 30, 2018 📺 Recode ⏱ 33m

At the 2018 Code Conference, Kleiner Perkins Caufield & Byers partner Mary Meeker released 294 slides in rapid succession, covering everything from smartphone behavior in the U.S. to tech company competition in China. ---- Subscribe: https://goo.gl/FRleYo Check out our full video catalog: https://goo.gl/JeqE6e Follow Recode on Twitter: https://goo.gl/n4jVhu Follow Recode on Instagram: https://goo.gl/k8KXjH Read more: http://recode.net/

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About Mary Meeker

Mary Meeker, a partner at Bond Capital and formerly at Kleiner Perkins, has continued to deliver her annual Internet Trends reports at Recode's Code Conference. In her 2019 presentation, she noted that global internet user growth was slowing, with a 6% increase in 2018 compared to 7% the prior year. She stated that 60% of the most highly valued U.S. tech companies were founded by first- or second-generation Americans, and that U.S. entitlements accounted for 61% of government spending, up from 42% 30 years prior. Meeker also highlighted the rise of data plumbing tools and the digitization of healthcare, quoting Tim Cook's view that Apple's greatest contribution to mankind would be about health. In previous years, Meeker's reports covered a range of trends. In 2018, she said that tech companies accounted for six of the top 15 R&D and capex spenders in the U.S., and that household debt was at its highest level ever. In 2017, she noted that China had become the number one provider of interactive video game content, surpassing the U.S. in 2016. In 2016, she described "easy growth" as being behind the industry, and in 2015 she discussed the reimagining of various industries and the importance of diversity in decision-making. Across her presentations, Meeker has consistently emphasized the growing role of mobile, the challenges of online advertising effectiveness, and the need for lifelong learning in an evolving work environment.

Source: AI-verified profile updated from Mary Meeker's recent appearances. Browse all interviews →

Transcript (34 segments)

Mary Meeker0:11

Folks at Kleiner Perkins who really helped put this together. This is certainly not a one-person show, and a lot of people do a lot of heavy lifting. In addition, we have a section on China compiled by the folks at Hillhouse Capital, specifically Liang Wu. This is a slide I'm not going to read. As those of you who've seen this before know, this is a presentation that was meant to be read, not presented. This provides a lot of context on what we're doing, and the presentation is available at KleinerPerkins.com. I encourage you to read it because I will go through this stuff super fast. This is the compilation of things we're going to address. There are a few things we won't get through. We will get through the advertising section, the enterprise software stuff, and the comments on USA Inc. and immigration, which the senator addressed in a very thoughtful way.

Percent versus 12% growth in the previous year. Global internet users of 3.6 billion surpassed half the world's population in 2018. The reality for the business people in the room: when you get to a market at 50% penetration, new growth becomes a lot harder to find. That's where the industry is at a really high level. That said, internet usage remains pretty solid, up 4% year-on-year with some US data. It's not duplicative, so there's a lot of multitasking going on. A lot of people ask the question about internet usage: how much is too much? Our view is it depends on how the time is spent. One of the things I feel really strongly about is there's a lot of innovation and competition.

Devices are getting better, faster, and cheaper. Access is rising dramatically. This looks at the expansion of Wi-Fi networks around the world. Products are getting a lot easier to use and they're becoming much more pervasive. Digital payments' digital reach is expanding. The portion of people around the world that make payments in any given day in a digital fashion is quite high. With payments, friction is declining. Products like messengers and mobile payments are rising dramatically, and digital currencies are emerging. This looks at Coinbase user growth. Local online connections are driven by offline connections, which are driven by online network effects. This looks at Nextdoor.

Emerging with voice. We've hit technology liftoff with word accuracy, and we've certainly hit product liftoff with Amazon Echo's install base estimated to be around 30 million plus. The last area to focus on in innovation and competition: competition is personalization. With personalization, data improves engagement and experiences and drives growth and scrutiny. Personal collective data provides better experiences for consumers. Facebook has 2.2 billion, Pinterest 200 million, Spotify 170 million, and Netflix 125 million people putting their data into these products to make their experiences better. Then there's the collective data of many other users that affect a lot of things.

Increasing their time on internet services based on perceived value. Regulators want to ensure data is not used improperly, and not all regulators think about this in the same way. When we look at Facebook, the company is experiencing higher engagement on the product, which drives monetization for the company and drives investment in product improvements. When you have rising monetization, rising growth, and rising data collection, it drives a lot of regulatory scrutiny, whether it's related to data privacy, competition, or safety and content. For the internet companies, it's key to understand all this stuff, and it's very complex. We're in the middle of it all right now and will be for a long time to come. It's important to understand the unintended consequences of the products. This is Mark Zuckerberg's quote in April.

We should be mindful of unintended consequences and open to change when things go wrong. While it's crucial to manage for unintended consequences, it's also irresponsible to stop innovation and progress, especially in a world where there are a lot of countries that are doing different things. I want to drill down on the US internet leaders. They've been aggressive and forward-thinking investors for years. This looks at private money into public companies and IPOs of companies over the last couple of decades. Money in has been quite significant. Tech companies have risen to 25% of the market cap of the MSCI, and that's been a steady increase. Tech companies account for six of the top...

At tech companies versus other industries in the United States. Tech is the largest, fastest-growing R&D and capex spender. The blue line looks at tech's 9% compounded growth rate in R&D and capex spending over the last 10 years, healthcare at 4%, and discretionary at 0%. It's just interesting to compare the growth rates in the different industries. Tech companies' R&D and capex is also rising as a percent of revenue at 18% versus 13% in 2002-2007. A lot of competition, a lot of R&D spending and capex spending driving a lot of innovation and growth. I'm going to switch to e-commerce. The transformation continues to accelerate. E-commerce revenue was up 16% in 2017 in the US.

And scaling. When we think about e-commerce today, it's often mobile, interactive, personalized, in the feed, in the inbox, and also often at the front door. We wanted to look at the stack of e-commerce just to give you a sense of some of the numbers and trends around how people are building stores and conducting commerce online. Oftentimes, offline merchants want to set up a payment system. A lot of times they'll start with a company like Square. Square has 2.8 million active sellers on its platform. We estimate a lot of times when people want to start and develop an online store, they'll go to a service like Shopify, about 600,000 active merchants on their platform. Integrated payment systems like Stripe, integrate fraud protection, integrate purchase financing, integrate customer support.

A storefront exchange where you can buy and sell online stores that have been created on the platform. I spent a little bit of time talking about how people find products and how that evolves. Search leads on the internet. Most people start at search, either at Amazon or a search engine like Google. With product finding at Amazon, it started with search, fulfilled by Amazon. Product finding at Google started with search, fulfilled by others. Discovery is emerging as a way to find products, especially on places like Facebook and Instagram. It started with personalized discovery in the feed, and it's getting more data-driven, personalized, and a lot more competitive. Google in effect is evolving from an ad platform to a commerce platform. Amazon is evolving from a commerce platform to an ad platform.

Year on its service, endeavoring to reach out to customers. Social media is enabling more efficient product discovery in commerce. A material portion of people that have used social media have found products on social media. A material portion have purchased those products after finding them on social media. If we look at e-commerce referrals from social media, they're at 6% versus 2% in 2015. It's rising very quickly. There are a large number of companies that are emerging as DTC retailers and brands that have used social media to experience very rapid levels of revenue growth. This looks at the number of companies that have gotten to $100 million in revenue in less than six years.

The area is customer lifetime value. Its importance is rising as customer acquisition costs increase. Lifetime value divided by customer acquisition costs is increasingly an important metric for retailers and brands. Data-driven personalization recommendations are in the early innings at scale. We look at the evolution of commerce over the last number of years, starting with demographic targeting with catalogs, brands with department stores and malls. Then we called it utility commerce, transactional commerce on the internet where you search for stuff. And now it's increasingly personalized e-commerce, curated product discovery, 24/7 recommendations. One of the best examples of that is Stitch Fix. Product purchases in e-commerce are evolving from buying to subscribing. This looks at some...

Its monthly active users are subscribers versus 0% when they launched the subscription product 10 years ago. That's primarily been driven by a really great user experience. Shopping is increasing as entertainment. Mobile shopping usage is one of the fastest-growing areas of app sessions. Product and price discovery is often video-enabled. Product and price discovery is increasingly social and gamified. Physical retail is trending long-term sales on a decelerating trend. And then there's China and new retail, which Alibaba is really leading. Alibaba is leading an e-commerce ecosystem born in China.

To quote some stuff from Alibaba, because not everybody may be familiar with how they view this new area of retail called new retail. It summarizes in some of their words: 'It's fair to say that our e-commerce platform is fast becoming the leading retail infrastructure of China. Alibaba's marketplace platforms handle billions of transactions each month. We have the best insights into consumer behavior. We have deep technology and a comprehensive ecosystem of commerce platforms, logistics, and payments.' Alibaba is increasingly extending its platform beyond China with both acquisitions and equity investments. As of 2017, about 8.4% of its revenue was outside of China versus 7.9% in the previous year. Our friends at Hillhouse Capital...

And the fastest growing. I'm going to focus on a couple of areas of commerce that are unique to China. One is a business called Hema stores, which is basically reimagining the grocery business. I'll let you look at the pictures for a moment. It looks like a very fun, interactive grocery store. The thing that is most interesting about it from a financial standpoint is that a very material portion of their revenue comes from online purchases, where people purchase things online and either pick up or have the items sent to them. Subsequently, their transactions per store are materially higher than many of their pure offline competitors. Also, a company called Belle, which is a shoe...

Also scan your shoe to get a sense of which shoes may fit you best. Video and entertainment in China: data usage is rising dramatically. It's actually accelerating, 162% versus 124% in the previous year. Mobile entertainment time spent: mobile video is by far and away the fastest-growing area of median entertainment time spent in China. This looks at short-form video with the blue line, and daily time spent in China growing very rapidly. There are several companies in China that have more than 100 million DAUs that are focused on short-form video. If we look at long-form video, the internet-enabled budgets surpassed...

Multiplayer video games in China are team-based, which is a new thing for the Chinese market over the last five years. Moving from China back to the US, which is a little bit of an interesting segue, I want to focus on consumer spending. The dynamics are evolving, and the internet is creating a lot of opportunities in our view for consumers. Making ends meet is difficult. Household debt is at the highest level ever and rising. Student debt is the highest grower. Auto follows, and mortgages are actually down versus the previous peak in the third quarter of 2018. Personal saving rate at 3% versus 12% 50 years ago. The debt-to-annual income ratio is rising at 22% versus 15% 50 years ago.

Shelter, taxes, transportation, food. We look at 1970 to 1990 and 2017. The things that are rising in a big way include shelter, pensions, insurance, and healthcare. The things that are falling on a relative basis are food, entertainment, and apparel. I want to drill down on food for just a moment. It's 12% versus 15% of household spending 28 years ago. Grocery store price growth at the margin is on a declining trend. One of the reasons for that is Walmart. Walmart helped reduce grocery prices via technology and scale and subsequently gained a lot of share in that marketplace. E-commerce is helping reduce prices for consumers. A quote from Austan Goolsbee at the University of Chicago: 'Online prices are falling absolutely relative to traditional inflation measures like the...'

Sporting goods. This is a quote from Hal Varian: 'We've seen how technology can make online shopping more efficient with lower prices, more selection, and increased convenience. And this is about to happen to offline shopping.' Drilling down a little bit more on spending, we indicated that shelter spending has been rising on a relative basis for consumers. That's what it looks like. The blue, red, and green specifically in US cities are much less densely populated than the rest of the world. South Korea is 17 times more densely populated in cities. Japan is 9 times, the UK is 6 times. Average home sizes in the United States are materially larger than they are in most places around the world. US homes are...

Utility of space. I've provided some examples of how some consumers are doing this. Airbnb provides income opportunity for hosts. There are an estimated 500,000 individuals in the US that have listings on Airbnb. I'll drill into that a little bit later. Five million listings around the world. For consumers, Airbnb can offer lower prices for overnight accommodations. Looking at transportation spending, it's actually relatively flat. There are a lot of reasons for that, including oil prices, but consumers are reducing their relative spend on vehicles and increasing utility of the vehicles that they have. Vehicles stay on the road for 12 years versus 8 years in 1995. Public transit use is rising, and ride-share use is rising as well. Uber is a company that provides...

Personal cars. For the five largest cities in the US, healthcare spending. My partner at Kleiner Perkins, Noah Knopf, pulled this together. I think it's pretty thoughtful. It looks at healthcare spending. Healthcare spending is increasingly shifting to consumers. US healthcare insurance costs are rising. All consumers are paying a higher portion of their insurance costs at 18% versus 14% in 1999. Deductible costs are rising a lot as well. The number of employees that have a $2,000 deductible or greater is at 22% versus 7% in 2009. When customers start spending more, they tend to pay more attention to value and prices, especially with things like the internet. Our question is: will market forces finally come to healthcare and drive prices lower for consumers?

On-demand pharmacy Capsule, women's healthcare specific solutions, Knox transparent pricing, doctor consultation not a US-based company, and simplified healthcare billing with Cedar. We ask the question: the consumerization of healthcare and rising data availability, may we finally be at the cusp of reducing consumer healthcare spending? I certainly hope so. Work is changing rapidly. The internet is helping. So far, technology disruption is not new, and technology disruption is accelerating. The internet has adopted faster than the PC, faster than the TV, faster than the telephone. What are the drivers of this? Rising and cheaper compute power and storage capacity, and rising and cheaper connectivity and data sharing. New technologies have created...

Versus 41% in 1900. Over the past 70 years, which is the period for which we have data, new technology concerns have abounded. GDP has risen, and unemployment has ranged between 3% and 10%. Will technology impact jobs differently this time? Perhaps. But it would be inconsistent with history, as new jobs and services, plus efficiencies, plus growth, typically create are created around new technologies. The job market is solid based on traditional high-level metrics in the US. Unemployment is at 3.9%, well below the 5.8% 70 years ago. Consumer confidence is high and rising. The index is at 100 versus 87, the 55-year average. Job openings at a 17-year high at 7.3 million.

Well below, but 3.5 million people below the 6.4% 50-year average. What's the most common activity for people that don't work? Leisure, household activities, and education. Job expectations are evolving. The most desired non-monetary benefit for workers is flexibility. Technology makes freelance work and other forms of work easier to find. Freelance work is growing 3 times faster than growth for the total workforce. On-demand jobs: these are big numbers and the growth is high. We spent a lot of time pulling this stuff together, and this is one of the first areas where we've seen it done in this way. On-demand workers: 5.4 million estimated in 2017 per Intuit, 23% year-on-year, estimated to be...

A few of these. Fiverr has 2 million sellers, Upwork has 16 million freelancers, and there are a lot of similar numbers from other players in the marketplace. On-demand jobs are filling needs for workers who want extra income, flexibility, and have underutilized skills and assets. This is data from Intuit that compiles the general view on what the basics and the benefits are of on-demand work. Number one and two are extra income and flexibility. I'm going to drill through some of the specifics for some of the companies. At Uber, 87% use Uber to set their own hours, 85% do it for work-life balance, and 74% drive on Uber to maintain steady income. On Etsy...

Creativity related to Etsy selling. Creating and selling provides happiness. Airbnb: 57% of hosts use the earnings to stay in the home that they are listing. Bill Gurley had a great quote about a month ago that described the on-demand marketplace, which I'll read: 'No Uber driver partner is ever told where or when to work. This is quite remarkable. An entire global network miraculously load balances on its own. Driver partners unilaterally decide when they want to work and where they want to work. The flipside is also true: they have unlimited freedom to choose when they do not want to work. The Uber network is able to elegantly match supply and demand without schedules and shifts. That worker autonomy of both time and place...'

Making it increasingly global and competitive. That accelerates with computer adoption, really started with the mainframe in the early 1950s. It started with government mainframe deployment gathering data for Social Security, for NASA, for the IRS. Some of the great companies of the last several generations in the US did the same thing, whether it was Bank of America to process checks, or Aetna to optimize insurance policies, Visa to create and manage the merchant network, or Walmart to track inventory and logistics. Data gathering, optimization, and sharing is again accelerating with computer adoption. This time it's with consumer mobile and the cloud. We've lived through two computing Big Bangs: the cloud started in 2006 by Amazon AWS, and consumer mobile with the...

Compute cost declines continue, and cloud service revenue is actually accelerating at 58% year-on-year. Data gathering, sharing, optimization enabled by consumer mobile adoption, social media adoption, and sensor pervasiveness. The amount of data that exists is growing at a torrid pace. Data can be an important driver of customer satisfaction. If we look at the US companies that carry a market cap in excess of $100 billion, they have relatively high customer satisfaction scores according to ACSI. The market average is 77 for the fourth...

Spotify personalization preferences drive engagement and customer satisfaction. So too, interests are driving engagement and customer satisfaction, growing very rapidly with artificial intelligence. Data improves the predictive ability of many services. Data volume is foundational to algorithmic refinement and AI performance. It's a foundational tool for product improvement. Artificial intelligence predictability and capability: AI service platforms are emerging from internet leaders. Amazon.com and Google are increasingly competing in the space.

Of the rapid areas of spending growth in the market. Sundar at Google said: 'AI is one of the most important things humanity is working on. It's more profound than electricity or fire. We have learned to harness fire for the benefits of humanity, but we had to overcome its downsides too. AI is really important, but we have to be concerned about it.' Data sharing creates multifaceted challenges. I love this comic, but it's very serious. Data and consumers have a love-hate relationship. The quote is: 'Just because I hate you doesn't mean I don't love you.' Data and consumers: most online consumers are willing to share data for benefits. 79% are willing to share personal data for a clear personal benefit. But consumers also take actions when the benefits are not clear. 64% according to...

From the rear, data sharing. There are a lot of different views. The EU, Asia, and America are increasing their regulatory focus on data collection and sharing, while China is encouraging data collection. Cybersecurity is also another factor. Cyber threats are another area where people have a different view on data and privacy. Malware volume is rising dramatically. I'll spend a few minutes on global internet leadership. The US and China economic leadership: China, India, and the US are the only markets that have relative GDP that is rising; others are falling. Cross-border trade continues to be very important. Internet leadership: a lot has happened over the last 5 to 10 years. This looks at today's top 20 internet leaders. Five years ago, 9 of the top 20...

Has gone to 15% share from 3%. The internet globally: the US platforms lead in numbers, more than 2 billion users of Facebook platforms and Google, while Tencent and Alibaba have 1 billion and 700 million respectively. If we look at those same internet users by country, the country that has the largest number of the global player that has the largest number of users on each platform is Tencent in China and Alibaba. No one has the volume of usage and users they have in a single country other than Tencent and Alibaba. Feature and data-rich platforms like Tencent and Alibaba look at the user interface in China internet...

If we look at AI in the US and China and look at the competition, China is increasingly winning the complex tasks in the competitions that take place. This looks at graduates from bachelor's equivalent degrees and doctoral degrees. China in red, US in blue, EU in yellow. China is trending very strongly, and the Chinese government is very focused on developing artificial intelligence. This is a quote from Eric Schmidt. And you'll be happy I'm almost done here. I'm assuming that the US is leading in artificial intelligence and will continue over the next five years, and that China will catch up extremely quickly. I'm going to close on some economic growth drivers and how they evolve over time. We're clearly in the...

Learning introduction to mathematical thinking, algorithms, neural networks, etc. Lifelong learning educational content usage is ramping very fast. YouTube has more than a billion views of daily learning videos. 70% of users use the platform to help solve work, school, or hobby problems. Lifelong learning employee retraining is high at some companies. In my view, AT&T is the best example. 77% of its workforce is actively engaged in retraining, most of it web-based. That's 194,000 people at AT&T. Lastly, lifelong learning: more than 50% of freelancers updated their skills within the past six months, compared with 30% for non-freelancers. I'm going to close with three...

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