Meeker Report: 3 Big Takeaways for Entrepreneurs
BY Erik Sherman
When former analyst-turned-VC Mary Meeker delivers her annual take on tech trends, the industry listens. Here's what her latest report means for start-up founders.
Former analyst-turned-VC Mary Meeker earned the title, "Queen of the Net," during the first dot com boom.
Mary Meeker, a former high-profile technology stock analyst and now a partner at the iconic venture capital firm Kleiner Perkins Caufield Byers, has produced an annual assessment of the tech industry for years. Her latest one, which she presented Wednesday at the D10 conference, reveals some eye-opening--and encouraging numbers--for entrepreneurs who either make or use technology to do business. But, jumping on an opportunity and making money off it are two very different things.
Here are three big takeaways for start-up founders:
1. Go east for Internet growth.
Citizens and businesses in western nations have rapidly adopted the Internet for work, study, and fun. In the U.S., for example, 79% of the population has access to and uses the Internet. Impressive, but a number that should make you consider business projections. If your products or sales and marketing channels depend on the Internet, realize that the West is reaching a saturation point. Some people simply won't be interested in the Internet, and the ones that will can't provide the same levels of growth we've seen.
Not to say that there is no value in western online markets. Far from it. But when you plan your business and consider growth, you have to think of where you can obtain it. Meeker's report suggests Asia–particularly China, a country with an estimated 513 million Internet users already (more than double the 245 million in the U.S.) And that figure represents only 38% market penetration. China has seen 12% year-over-year growth. India has 38% growth and only 10% market penetration. Indonesia: 22% growth and 23% penetration.
But reality has to set in. Not only do you have to learn how to do business in any of these countries, but you need a business model that will generate revenue and that recognizes the far greater price sensitivity of consumers there.
2. Mobile is moving.
Mobile telecommunications and computing in mainstream 3G technology (without even considering the expansion of high speed wireless connectivity) is an enormous growth engine. The U.S. sees 31% year-over-year growth even with 64% penetration and 208 million subscribers out of a populace of roughly 300 million. Japan has 95% penetration, while Korea's is 85%. There is also enormous potential in markets that have low penetration: India (4%), China (6%), Russia (8%).
There's one catch: You have to find a business model that will let you make money on mobile. Mobile e-commerce represents well under 10% of e-commerce in general and advertising costs per thousand on mobile are only a fifth of the already low numbers on the desktop.
Facebook shows what can happen if you bank on mobile without finding a way to fill the vault. The company's year-over-year mobile growth last quarter was 69%. But management still hasn't discerned how to make money on mobile, with small displays that curtail the number of ads that can fit on a page (0 right now for Facebook) and no obvious way yet to get a cut of some type of transaction or other. As a result, last quarter saw a 37% increase in ad revenue and only 1% growth in the annualized average ad revenue per user. In other words, mobile users are contributing virtually nothing to Facebook revenue and are undercutting the company's overall financial position.
3. iPad is hot, but Android is hotter.
You'd have to hide from the news not to hear that iPad use has seen rapid expansion. The tablet has been growing at three times the rate of the iPhone, which is saying a lot. As of January 2012, 29% of adults in the U.S. owned either a tablet computer or e-reader.
Android phones are growing even faster at four times that of the iPhone. You can expect growth in all the devices to continue. Out of the 6.1 billion mobile phone subscriptions, only 953 million have smartphones.
How that growth will play out is a question, though. Apple makes money because it controls its own ecosystem as a way to help lock customers in to its highly profitable hardware platform. But while a few companies are doing well supplying apps, most are making relatively small amounts: $8,500 per publisher per year, and that doesn't count the skewing effects of the big winners. Android is even less profitable for most companies.
If you want to reach people, smartphones and tablets will be necessary. But don't necessarily expect that reaching them is enough. You'll still need to offer something they really want and manage transactions in an efficient and effective way.