The 2019 Internet Trends Report
I wrote this nearly a year ago. COVID-19 has accelerated some of these trends. But which ones?
*Read this, and ask yourself, what has COVID-19 accelerated and what has it slowed in terms technology trends. Originally posted on my Medium account nearly a year ago.
A little more than 2 weeks ago, widely recognized investor and tech research analyst Mary Meeker released her 2019 Internet Trends Report. Meeker has been writing the report every year since 1995, when she was a senior research analyst at Morgan Stanley. Meeker is credited for her great coverage of the Netscape IPO, surviving the Dot-Com Bubble Burst, and serving as the lead research analyst on Google’s IPO in 2004).
She has continued writing the report every year, even after leaving Morgan Stanley to join Kleiner Perkins and then starting her own early-stage firm, Bond. Mary Meeker is an expert on all things internet (and one of the greatest VCs of the era), and her Internet Trends Report is a must-read for many start-up founders and employees.
It is difficult to summarize three hundred and thirty-four pages of insights is a lot and so I focused on the insights that I found to be the most valuable and for Birmingham based founders and employees alike. I combined my summary with the insight of some of the industries best-thought leaders such as Andrew Chen of a16z, Jeremy Liew of Lightspeed Venture Partners, and Chamath Palihapitiya of Social+Capital.
In this post, I will focus on insights concerning Internet Ad Spending, On-Demand Consumers and On-Demand Consumer-focused Companies, and remote work as well as how they could potentially impact start-ups in the Birmingham start-up ecosystem.
We will start right with some of the straight-forward more macro looking data from the report,
3.8 Billion: the number of internet users there are in the world, this number constitutes more than half of the world’s population.
China: the world’s largest market of Internet Users. China is home to 21% of the Worlds internet users. The United States is only home to 8% of internet users.
6%: the percentage of growth of internet users globally. The growth of internet users year and year actually slowed down, decreasing from seven to six percent.
4%: the percentage decrease in the total amount of smartphones shipped globally.
Microsoft: The most valuable internet market capitalization leader with a market cap of over $1 trillion. Its market value is up 146% from 2016 to 2019. Of the top 30 Internet companies based on the highest market cap, 18 are based in the US, and seven are based in China.
60%: the percentage of America’s most valuable Internet companies founded by first or second-generation immigrants.
Internet Ad Spending
It continues to pay to be Google and Facebook. Spending on Internet ad’s accelerated, up 22% Y/Y. The vast majority of ad spending is spent on mobile ads(33%) as opposed to desktop(18%). Ten years ago, spending on mobile ads was virtually non-existent, today, mobile ads are demanding the largest percentage of spend on internet ads.
Google and Facebook also continue to receive the bulk of the revenues for Internet ads. Google has seen a 1.4x growth in Internet ads revenue between Q1 2017 and Q1 2019. Facebook has grown Internet ad revenues 1.9x over the course at the same time period. The largest growth, however, belongs to other Internet ad platforms such as Amazon, Snap, Twitter and Pinterest, who combined have seen a 2.6x jump in Internet ad revenues.
What that could mean if I’m a Birmingham Start-Up: The modern start-up narrative follows a familiar cadence: raise a $1 million seed round, then promptly use those $1 million dollars and spend the bulk of it on customer acquisition through programmatic marketing on Facebook, Google, Instagram, and other social channels.
Programmatic marketing is the use of buying tailored ads in real-time auctions through algorithms that target specific audiences. Today, 62% of Internet ads are programmatic. The problem with this approach? Every single start-up is doing it, driving up the cost of ads.
Start-ups are spending 40 cents of every VC dollar they raise on Google and Facebook ads, which needs to be taken into account when starting a seed round. Founders increasing the amount of money they ask for in order to account for higher ad prices. With this in mind, start-ups should consider raising more money at a lower valuation, make considerable progress, then go raise at a high valuation in the future when they have achieved stronger metrics.
On-Demand Consumer
On-demand marketplace users continue to grow. At the end of 2018, nearly 56 million consumers in the United States were using on-demand apps like Uber and Airbnb. There is no doubt that this number will continue to grow. The most popular category of on-demand apps was the mobile marketplace with consumers spending $30 billion dollars per year, closely followed by transportation, housing, and food delivery.
I had expected food delivery to continue to be the next major battleground for on-demand start-ups, as Amazon recently surrendered GrubHub, Postmates, DoorDash, and UberEats (but then they turned around to lead the Series G round in Deliveroo, Europe’s largest food delivery service).
GrubHub is the only independently publicly-traded food delivery service and draws in nearly $1.07 billion in revenue. UberEats, Uber’s insanely fast-growing food delivery service, delivered 13% of Uber’s total revenue, according to their S-1 Filing, that’s $1.5 billion in revenue.
DoorDash recently closed on back-to-back funding rounds. In summer 2018, they closed a $250 million Series E, and 6 months later, they added $500 million to their bank for their Series D. That money allowed for them to aggressively add users and larger ticket sizes on user orders. At the end of February, they pulled ahead of UberEats in terms of total market share, holding 27% of the market compared to Uber Eats 25%.
Market share based on consumer spend, part of the reason Uber is 2nd to door dash is that UberEats has smaller ticket sizes due to its relationship with McDonald’s
What that could mean If a Birmingham Start-Up: Waitr, the Southeast-focused food delivery company is not a Birmingham-based company, but they focus all of their business on the Southeast. With DoorDash easily raising millions of dollars and UberEats on-boarding flagship brands like McDonald’s and Starbucks, it is hard to compete.
Amazon will not look to acquire any food delivery businesses like Waitr in the states anytime soon, because it has become clear that if Amazon knows they can’t win market share, they aren’t going to try. This became evident mainly in the shutting down of Amazon Restaurants. If the mighty Amazon cannot compete with Uber and DoorDash, companies like Waitr should be nervous.
Outside the scope of food delivery and transportation, Americans are spending billions of dollars on on-demand marketplaces. They’re turning to their phones to book babysitters, plumbers, parking, and makeup artists.
I predict that the rise of these on-demand marketplaces will continue to grow in cities like Birmingham, which is already home to companies like Wyndy, Clutch! and GLOW. The bad news is that every on-demand start-up you find, you’ll also find there’s three or four more like it competing for the exact same users and on-demand workers.
As a consumer-focused on-demand start-up, your business depends on unit economics. As Andrew Chen of a16z puts it, for online marketplaces, the supply side is king, and in order to build supply, you’ll need lots and lots of cash to build your on-demand labor workforce.
In the United States alone, the on-demand workforce grew to over 6.6 million workers in 2019, a 22% growth year-over-year. Start-ups in this arena need cash to recruit them to their platforms, and even more, cash to keep them there.
If you’re running an online marketplace in Birmingham, you should be focused on raising large amounts of capital to compete with others across the nation.
Remote Work
Something Birmingham founders need to take note of is the trends in remote work. Unsurprisingly, the reported percentage of remote workers has steadily grown and is projected to continue to rise. In 2000, just 3% of Americans worked remotely, but that number has steadily risen to 5% in 2019.
This rise has been made possible through the use of workplace collaboration tools such as Slack, G Suite, Hubspot, Help Scout, and many more. Working from home has a tremendous amount of benefits for the remote worker — flexible work hours, ability to travel, and the chance to spend more time with family. There are benefits for businesses employing remote workers as well, including lower relocation expenses, increased employee satisfaction, and higher retention rate
What that could mean if I’m a Birmingham Start-Up: In the state of Alabama, there is a shortage of 4,000 software engineers state-wide, and over 1,000 in Birmingham alone. Remote work could fill the engineering supply gap. Many companies do a great job of utilizing remote work in the Birmingham area, one stand-out example being Fleetio. As companies seek top-talent to fill open positions, they should not rule-out remote workers,
As a testament to this trend, Stripe, the payments processing company worth over $22 Billion, just opened an office specifically for remote employees on their engineering team. It will be interesting to see how this move plays out for Stripe, as well as whether or not more growing companies will adopt this strategy. As Birmingham start-ups look to grow and compete with national brands, founders need to pay attention, too.
My Final Thoughts on the Internet Trends Report:
Each year, this report provides invaluable insight for founders, employees, investors, and everyone in-between. I hope Birmingham-based companies take note of these trends and their implications as our ecosystem continues to mature and grow.
The report contains more about podcasts, immigration, e-commerce vs. physical retail (although it doesn’t focus enough on Digital Native Vertical Brands) and many other great insights. The insights I chose to highlight are the ones with the highest implications for start-ups in Birmingham and similar cities. For more, keep reading here: Internet Trends Report
If you have read the report, what are your thoughts on some of the insights and how they could impact the Birmingham start-up ecosystem? Let me know! I’m always interested in sitting down and chatting.
Happy learning and please share your thoughts with me!
-Sean