20 Takeaways From Mary Meeker’s 2018 Internet Trends Report

It’s the most wonderful time of the year: Kleiner, Perkins, Caufield & Byers Partner Mary Meeker’s 2018 Internet Trends Report is out. Big themes in the 294 slides this year: Privacy, ecommerce, China and work. Here’s a closer look at the year, according to Meeker: We’re living in the midst of a privacy paradox. Usability improvements are based on data, which creates what Meeker called a privacy paradox: internet companies make low-priced services better thanks to user data; users increase time spent based on their perceived value of said services; and regulators want to ensure user data is not used improperly. And Meeker said it’s key for internet companies to understand the unintended consequences of their products and that regulators understand the unintended consequences of regulation. “But it’s irresponsible to stop innovation and progress,” she added. Amazon = ecommerce. At least in the U.S. Transformation is accelerating in ecommerce with 16 percent year-over-year growth in 2017 with around $450 billion in the U.S. Ecommerce is now at 13 percent of retail sales. And Amazon’s ecommerce continues to increase its share of sales as well—in 2017, it was at 28 percent share with $129 billion gross merchandise volume (GMV) versus $52 billion GMV in 2013, or a 20 percent share. Search is changing! Another Amazon win: The way consumers search is changing. Now, 49 percent of product searches start at Amazon—36 percent start on a search engine. What’s more, Amazon is better poised to capitalize on those searches with features like one-click purchasing, which encourage consumers to use Amazon to fulfill orders that result from those searches. Product finding at Google, on the other hand, takes consumers away from Google, so orders are fulfilled by others. Brands can proactively plant themselves in front of consumers. The way consumers discover products is also changing, fueled in part by Facebook and Instagram, which feature ads in feeds. Social media is driving purchases as well—Facebook leads the way with 78 percent of survey respondents saying they have discovered products on the platform, followed by Instagram and Pinterest with 59 percent, Twitter with 34 percent and Snap with 22 percent. What’s more, 55 percent of respondents said they have purchased a product online after a social media discovery. [kickout id="1"] Subscription services are hot. When it comes to product purchases, many are evolving from buying to subscribing via services like Netflix, which, at 118 million subscribers in 2017, saw 25 percent growth, and Spotify, which, at 71 million subscribers, saw 48 percent growth. Newcomer Peloton had 172,000 subscribers in 2017, which marked a whopping 173 percent growth. Subscription services are appealing because they offer access, selection, price, experience and personalization. Shopping + Entertainment = Fun, Fun, Fun Product and price discovery are often video-enabled on sites like YouTube and Chinese shopping website Taobao and they are often social and gamified on sites like Wish, which offers hourly deals to 300 million users, and Pinduoduo, which invites users to refer friends to reduce the prices they pay. Watch this space: Amazon v. Alibaba In 2017, Alibaba had a higher gross market value at $701 billion (to Amazon’s $225 billion) while Amazon had higher revenue ($178 billion to Alibaba’s $34 billion). But Alibaba’s “new retail” vision is starting to take hold in China. The marketplace platform handles billions of transactions each month, which provide insights into consumer behavior. And Alibaba is extending its platform beyond China with investments in platforms in Pakistan, Indonesia, India and Singapore. [kickout id="2"] Brands should spend $7 billion on mobile ads! Growth continues in internet advertising. While percent of time spent in media and percent of ad spend declined in print, radio and TV, Meeker identified a $7 billion opportunity in ad spend in mobile as time spent was up 29 percent and ad spend was up 26 percent. [kickout id="3"] Platforms are starting to deal with bad content. Big advertisers like P&G cut millions in digital ad spend because of brand safety concerns—and Unilever has also threatened to reduce ad spend on tech platforms that don’t combat divisive content. As a result, platforms have started to take action. That includes Google/YouTube, which removed 8 million videos in Q4 2017—81 percent of which were flagged by algorithms. Another 2 million videos were de-monetized for misleading content tagging in 2017. [kickout id="4"] U.S. consumers are broke. U.S. consumers are struggling to make ends meet with household debt at its highest level ever and rising. Compared to Q3 2008, student loan debt is up 126 percent, auto debt is up 51 percent and mortgage debt is down 4 percent. The personal savings rate is also falling at 3 percent (versus 12 percent 50 years ago) and the debt-to-annual-income ratio is rising at 22 percent (versus 15 percent in 1968). But grocery at least is becoming more affordable. Grocery prices are on a declining trend due to competition—particularly from Walmart, which has helped reduce grocery prices via technology and scale. But ecommerce is also helping reduce prices for customers. Consumer goods prices have fallen 3 percent online and 1 percent offline since Q1 2016. And the goods seeing the biggest online versus offline price declines include TVs, furniture, computers and sporting goods. [kickout id="5"] The consumerization of U.S. healthcare could finally make it more affordable? Healthcare is at 7 percent of U.S. household spending (versus 5 percent in 1972) and is the fastest relative percentage grower as healthcare spending increasingly shifts to consumers. And when consumers start spending more, Meeker said they tend to pay more attention to value and prices, so she asked whether market forces will finally come to healthcare and drive prices lower for consumers. In addition, patients are increasingly developing consumer expectations in terms of a modern retail experience, digital engagement, on-demand access, vertical expertise, transparent pricing and simple payments, so Meeker also asked whether the consumerization of healthcare and rising data availability means we’re on the cusp of reducing consumer healthcare spending. More Americans are working on-demand. On-demand jobs are also experiencing high growth with 5.4 million on-demand workers in 2017 and an anticipated 6.8 million in 2018. Real-time platforms include Uber (with 3 million drivers) and DoorDash (200,000 delivery agents); internet-enabled marketplaces include Etsy (2 million sellers), Upwork (16 million freelancers) and Airbnb (5 million listings). These on-demand jobs are filling needs for workers who want extra income and flexibility or who have underutilized skills or assets, Meeker said. Data helps make consumers happy…to a point. Data gathering, sharing and optimization is enabled by consumer mobile and social media adoption and sensor pervasiveness like Google Maps, Mobike, Nest, Samsara, Motiv and Joule. And data gathering, sharing and optimization is ramping up at what Meeker called a “torrid pace,” going from 12 zetabytes in 2015 to an anticipated 47 zetabytes in 2020 and 163 zetabytes in 2025. Data can be an important driver of customer satisfaction. Case in point: U.S. tech companies like Amazon, Google, Netflix and Booking.com have higher-than-average American Customer Satisfaction Index Scores. Platforms are more transparent about privacy. Per Deloitte, 79 percent of U.S. consumers are willing to share personal data for a clear benefit. However, most online consumers protect their data by taking actions like deleting certain apps, adjusting settings or disabling cookies when the benefits aren’t clear. And so we’ve seen internet companies like Facebook and Google make consumer privacy tools more accessible. China is taking over the world. Five years ago, the U.S. had nine companies (Apple, Amazon, Microsoft, Google/Alphabet, Facebook, Netflix, eBay/Paypal, Booking Holdings and Salesforce) in the top 20 worldwide internet leaders and China had two (Tencent and Baidu). Today, the US has 11 (with the addition of Uber and Airbnb) and China has nine (with the addition of Alibaba, Ant Financial, Xiaomi, Didi Chuxing, JD.com, Meituan-Dianping and Toutiao). China also has the largest number of internet users in one country and those users are more willing to share data for benefits compared to other countries (38 percent versus 25 percent in the U.S.). This digital data volume is providing fuel for rapid AI advancements. In addition, the Chinese government is highly focused on developing AI. So, Meeker said, while the U.S. is ahead, China is “focused, organized and gaining.” China is killing it in digital video. China's internet usage is accelerating—with 753 million mobile internet users, which is up 8 percent. Online entertainment in China includes long- and short-form video and team-based multiplayer mobile games—and it is growing quickly. Mobile video is growing fastest, up 22 percent year over year. China’s short-form video leaders have more than 100 million daily active users who average 50 minutes a day. That includes Douyin and Kuaishou. China’s online long-form video content budgets surpassed TV networks in 2017 and this original/exclusive content is driving industry-wide paying subscriber growth. Chinese companies are changing retail. China’s worldwide ecommerce share gains continue. It is at 20 percent in terms of ecommerce share of retail sales and has the highest penetration rate. It is also the fastest growing. Alibaba’s Hema Stores, for example, are reimagining the grocery retail experience with digital grocery and real-time ecommerce. Chinese shoe brand Belle is reimagining the offline retail experience with online analytics like a traffic heat map, RFID in floor mats and 3-D foot scans. China also leads in mobile payments. Its mobile payment volume hit $16 trillion in 2017 and is led by AliPay (54 percent) and WeChat Pay (38 percent). [kickout id="6"] Consumer-like apps have changed enterprise computing. Messaging threads are increasingly foundational for consumers (Snapchat, Square Cash, Strava) and enterprises (Dropbox, Slack, Intercom). Enterprise threads organize information and teams and provide context and history. The U.S. needs immigration. Immigration is important for U.S. technology job creation. The U.S. has 56 percent of the most highly valued tech companies founded by first- or second-generation Americans, which accounted for 1.7 million employees in 2017.