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What Happened In 2017

As has become my practice, I celebrate the end of a year and the start of a new one here at AVC with back to back posts focusing on what happened and then thinking about what might happen.

Today, we focus on what happened in 2017.

Crypto:

I went back and looked at my predictions for 2017 and I completely whiffed on the breakout year for crypto. I did not even mention it in my post on New Year’s Day 2017.

Maybe I got tired of predicting a breakout year for crypto as I had mentioned it in my 2015 and 2016 predictions, but whatever the cause, I completely missed the biggest story of the year in tech.

If you look at the Carlota Perez technology surge cycle chart, which is a framework I like to use when thinking about new technologies, you will see that a frenzy develops when a new technology enters the material phase of the installation period. The frenzy funds the installation of the technology.

2017 is the year when crypto/blockchain entered the frenzy phase. Over $3.7bn was raised by various crypto teams/projects to build out the infrastructure of Internet 3.0 (the decentralized Internet). To put that number into context, that is about equal to the total seed/angel investment in the US in 2017. Clearly, not all of that money will be used well, maybe very little of it will be used well. But, like the late 90s frenzy in Internet 1.0 (the dialup Internet) provided the capital to build out the broadband infrastructure that was necessary for Internet 2.0 (the broadband/mobile Internet), the frenzy in the crypto/blockchain sector will provide the capital to build out the infrastructure for the decentralized Internet.

And we need that infrastructure badly. Transaction clearing times on public, open, scaled blockchains (BTC and ETH, for example) remind me of the 14.4 dialup period of the Internet. You can get a taste of what things will be like, but you can’t really use the technology yet. It just doesn’t work at scale. But it will and the money that is getting invested via the frenzy we are in is going to make that happen.

This is the biggest story in tech in 2017 because transitions from Internet 1.0 to Internet 2.0 to Internet 3.0 cause tremendous opportunity and tremendous disruption. Not all of the big companies of the dialup phase (Yahoo, AOL, Amazon, eBay) made a healthy transition into the mobile/broadband phase. And not all of the big companies of the broadband/mobile phase (Apple, Google, Facebook, Amazon) will make a healthy transition into the decentralized phase. Some will, some won’t.

In the venture business, you wait for these moments to come because they are where the big opportunities are. And the next big one is coming. That is incredibly exciting and is why we have these ridiculous valuations on technologies that barely/don’t work.

The Beginning Of The End Of White Male Dominance:

The big story of 2017 in the US was the beginning of the end of white male dominance. This is not a tech story, per se, but the tech sector was impacted by it. We saw numerous top VCs and tech CEOs leave their firms and companies over behavior that was finally outed and deemed unacceptable.

I think the trigger for this was the election of Donald Trump as President of the US in late 2016. He is the epitome of white male dominance. An unapologetic (actually braggart) groper in chief. I think it took something as horrible as the election of such an awful human being to shock the US into deciding that we could not allow this behavior any more. Courageous women such as Susan Fowler, Ellen Pao, and many others came forward and talked publicly about their struggles with behavior that we now deem unacceptable. I am not suggesting that Trump’s election caused Fowler, Pao, or any other woman to come forward, they did so out of their own courage and outrage. But I am suggesting that Trump’s election was the turning point on this issue from which there is no going back. It took Nixon to go to China and it took Trump to end white male dominance.

The big change in the US is that women now feel empowered, maybe even obligated, to come forward and tell their stories. And they are telling them. And bad behavior is being outed and long overdue changes are happening.

Women and minorities are also signing up in droves to do public service, to run for office, to start companies, to start VC firms, to lead our society. And they will.

Like the frenzy in crypto, this frenzy in outing bad behavior, is seeding fundamental changes in our society. I am certain that we will see more equity in positions of power for all women and minorities in the coming years.

The Tech Backlash:

Although I did not get much right in my 2017 predictions, I got this one right. It was easy. You could see it coming from miles away. Tech is the new Wall Street, full of ultra rich out of touch people who have too much power and not enough empathy. Erin Griffith nailed it in her Wired piece from a few weeks ago.

Add to that context the fact that the big tech platforms, Facebook, Google, and Twitter, were used to hack the 2016 election, and you get the backlash. I think we are seeing the start of something that has a lot of legs. Human beings don’t want to be controlled by machines. And we are increasingly being controlled by machines. We are addicted to our phones, fed information by algorithms we don’t understand, at risk of losing our jobs to robots. This is likely to be the narrative of the next thirty years.

How do we cope with this? My platform would be:

  1. Computer literacy for everyone. That means making sure that everyone is able to go into GitHub and read the code that increasingly controls our lives and understand what it does and how it works.
  2. Open source vs closed source software so we can see how the algorithms that control our lives work.
  3. Personal data sovereignty so that we control our data and provision it via API keys, etc to the digital services we use.
  4. A social safety net that includes health care for everyone that allows for a peaceful radical transformation of what work is in the 21st century.

2017 brought us many other interesting things, but these three stories dominated the macro environment in tech this year. And they are related to each other in the sense that each is a reaction to power structures that are increasingly unsustainable.

I will talk tomorrow about the future, a future that is equally fraught with fear and hope. We are in the midst of massive societal change and how we manage this change will determine how easily and safely we make this transition into an information driven existence.

The Digital Advertising Duopoly

This chart from eMarketer really brings it home.

We have a digital advertising duopoly.

The difference between second and third place is massive.

I don’t want nor do I expect any governmental response to this market failure.

I want to see the technology industry adopt new approaches to monetization, ideally not attention based models, to combat this.

I don’t think subscriptions are the only answer here, as many do.

We need models that support free consumption of media for many reasons.

I think the crypto sector has some answers for us but I am also looking elsewhere.

We need new approaches and we need them now.

Feature Friday: Quote Retweet

One of my favorite features on Twitter is the ability to retweet something with added context.

Like this:

I do this a lot:

You get my point.

There are a lot things Twitter can do to make Twitter better but getting rid of the Quote Retweet is not one of them.

Airpods and Android

I wrote a post a month or so ago saying that I had fallen hard for Airpods while I was briefly using an old iPhone and was going to miss them when I moved back to Android.

A bunch of readers responded to me in the comments and via email that the Airpods would work just fine as Bluetooth headphones on my Pixel phone.

And they were right. I have been using the Airpods with my Pixel for a month now and they work great.

So if you are an Android user like me and like the idea of tiny wireless headphones in your ear without wires or bulk, you can absolutely get a pair.

Now if Apple would only make iMessage work on Android there would be no reason to use an iPhone 😉

Airpods (continued)

I wrote a post a couple days about how much I like Apple’s Airpods and that I was going to miss them as I head back to Android.

Well it is a good thing I wrote that post and an even better thing that so many smart and informed people read AVC.

If you wade into the comments section to that post, you will see quite a few comments explaining that Airpods can be used with Android as standard bluetooth headphones. I also got quite a few emails from readers explaining that same thing.

I tried that this morning and I worked like a charm. So I get to keep my Airpods as I move back to Android. I’m thrilled. Now if I could only keep iMessage too. Then I’d have everything that is better about iPhone on my Android.

Airpods

I broke my Pixel a few weeks ago and have been using an old iPhone since then.

I was hoping to hold out until the new Pixel comes out, but I couldn’t hold out and got a new Pixel this week which I’ve now cut over to.

The one thing I am going to miss about the iPhone was the Airpods that I got when I went back to iPhone.

The Airpods are the best wireless headphones I’ve ever used, by a wide margin.

I am going to miss them.

I am going to find the closest bluetooth version of them I can for my new Pixel.

If anyone has any suggestions, I am all ears.

No pun intended.

Oreo

I received an over the air upgrade to the Oreo version of Android (Android 8) yesterday.

It makes my phone feel even more like an iPhone. Notifications work more like iOS.

Google has polished the UI quite a bit and it is a joy to use.

I have been saying for several years that Android and iOS are copying the best things from each other and they feel more and more similar than ever.

I don’t really think it matters what mobile OS you use these days. They are both really great.

Monetizing A Free App

A number of our portfolio companies that have free web/mobile apps that are monetized by advertising have offered a low-priced subscription offering that removes the ads and, often, offers offline sync on the mobile apps.

Here are some examples:

I am sure there are other examples in our portfolio but those are the ones I am most familiar with.

I like this model a lot. As Duolingo said in their Duolingo Plus launch communications, it allows a free service to remain free for those who can’t pay for it.

It also allows those who don’t want the ads to remove them. And other value added features, like offline sync, make the subscription offering compelling for power users.

Pandora’s Plus offering is a good example of this approach and, because it is a public company, we can take a look at the numbers.

In Q4 2016, Pandora had roughly 4.4mm paying subscribers out of roughly 80mm total users, only about 5% of its user base.

But if all of those 4.4mm subscribers are to the low priced ($5) plan, then they would generate $265mm on an annualized basis. I assume that the subs revenue number is a bit larger because there is also a $10/month plan. So let’s say subs revenue is $300mm.

Pandora’s total revenue is about $1.4bn a year so subs represents over 20% of the revenue even though only 5% of the users take the subs offering.

So if you have a free ad supported service with a lot of regular power users, you should really consider adding a low priced subscription offering.

It will diversify your revenue mix and gives your users the ability to opt out of the ads if they want to.

Video Of The Week: What Is Kin?

Our portfolio Kik announced last week that they plan to decentralize their messenger app and monetize via a cryptocurrency called Kin. Here’s a video they put together explaining how it will work and why it is important:

Feature Friday: Twitter DM

I was with a friend this week and was DM’ing with someone on my phone.

He said “do you DM on Twitter frequently?” I said “yes, I use it all the time.”

Twitter DM is like any other messenger, particularly on the phone. It has the advantage of not needing to know the person’s phone number or handle on a messenger service. If you follow them and they follow you, you can DM them and chat like any other messenger.

It has the advantage of not needing to know the person’s phone number or handle on a messenger service. 

I like it a lot for that one feature – not needing to know the person’s contact info beyond their Twitter handle.

If you use Twitter a lot but don’t use DM, you should give it a try.

It’s super useful in a pinch when you need to reach someone and don’t know how.