Soumitra Sharma

In God we trust; all others bring the Mary Meeker Report

Mary Meeker has released her (now world-famous) 2018 Internet Trends Report. This annual ritual, btw, is a killer marketing move implemented by KPCB for several years now. Nothing goes further than strong, original content, in cementing the brand of a venture firm.

There are several articles already out there that summarize this report (TechCrunch has done a nice, quick-and-dirty capture of key highlights here). However, as I was reading the report, I tried to connect the dots between the data and analysis presented in it, and my own experiences/ world-view. Here are the portions, and consequent implications, that I find interesting enough to highlight here:

1. It’s a two-horse race…and China is here to stay!!

Here’s why I am LONG on China (and large Chinese tech companies). Also, why I choose to live in the US and why I have strong belief in the entrepreneurial fundamentals of this country…

2. ‘Tech’ is in everything!

25% of US public market cap is pure technology. Today, every major company has become a “tech’ company in some sense. Each of us is impacted by tech companies, either as a user, employee or shareholder. There is just no excuse for anyone to not follow tech/ not have a point of view on it, irrespective of whether you directly work in the space or not!

Sidenote: below is the reason why US is still the top destination to build a tech company (in my view, it’s #1 from a holistic perspective). Can’t think of many other markets (barring China) that have both thriving private markets that take on venture risk, and robust public markets that give exits.

3. The era of conventional ‘jobs’ is over — gig economies are taking over!

The Industrial Revolution had created the concept of 9-to-5 jobs, with each worker bringing structured and specialized skill-sets to the table. With tech-led automation, this paradigm will cease to exist soon.

The Internet (followed by the ‘decentralized’ economy in coming years) has turned the world into an interconnected marketplace. In the future, citizens will be expected to contribute their unique value (creative or innovation led in most cases) into this marketplace via flexible ‘gigs’, with majority of tasks automated via tech and lot of human bandwidth freed up.

Sidenote: in the era of these new gig-based paradigms, a key challenge facing Millennial parents today is — how to think about skilling and the concept of a ‘career’ for their kids 20–30 years into the future? Also, what does this mean for school and university education? Topic for another post…

4. Forget your bad cell connection…as long as you have wifi!

During my startup days driving global GTM for a mobile search company, we had gotten a Nielsen study commissioned to understand behavior of Indian mobile users. This is in pre-Reliance Jio days, wherein data speeds were really slow (mostly 2G, 3G was a luxury). An interesting insight from the study was digital consumption in India being driven by wifi, rather than mobile data. In fact, the state-owned telco BSNL had enabled pan-India wifi connectivity, which led to the Internet boom in the country starting 2010. Looks like that trend is still driving global Internet access.

Sidenote: Even in the US market, Laptop/ Desktop usage is by no means, dead (see chart below). Though its share of daily hours spent has reduced from ~58% in 2012 to ~35% in 2017, it’s still a meaningful number in absolute terms and has held steady at ~2 hrs per day over last 5 years.

5. The world needs to discover the magic of QR Codes (ala China)

From my Alibaba/ Ant Financial experience, it wasn’t a surprise to me that 60% of everyday transactions globally are digital. However, only a 4% share for QR Codes was surprising. The world needs to discover their magic…soon. In fact, I have always wondered why this technology is so under-exploited in the US. Alipay has used QR Codes so beautifully to make China virtually cash-less (and Paytm is following a similar strategy in India).

BTW, this is what happens when a market adopts QR Codes…look at this frikkin’ curve!

6. Smartphone OEMs are in a race-to-the-bottom

0% growth in new smartphone shipments + ASPs coming down every year = a shitty industry. OEMs are in for a tough time. Non-Chinese OEMs are pretty much gone anyway. I see lot of startups doing distribution deals with OEMs — beware of hitching your wagon to an “unstable” engine.

Also, as I recently upgraded to the new iPhone X (which, btw, looks and feels eerily similar to my 1st iPhone in 2010; talk about Steve Jobs nostalgia), the first thought that crossed my mind — I can’t believe we are still using these devices. Don’t you feel the same way?

7. eCommerce is yet to inflect…even in the US!

As Prof. Scott Galloway says in this video (which you should definitely watch anyway; it’s about how Grocery is the next vertical likely to be disrupted by eCommerce in the US), 20% online retail penetration is typically the ‘tipping point’ in any vertical. US eCommerce penetration, even with Amazon & Walmart.com & other horizontals & other verticals & other marketplaces, is still only ~13%!! In my view, online can easily become at least 40–50% of the total retail market in major economies. Imagine the headroom for growth that still remains.

8. Amazon needs to have ‘Google Search’, Google needs to have ‘Amazon Prime’

This is probably the most interesting chart from the report. Google has dominated the ‘top-of-funnel’ across pretty much every use case for >15 years. Over last few years, eCommerce has become a dominant use case, resulting in the rise of Amazon. In fact, the company has become so ubiquitous that at least for product searches, it has now displaced Google as the search & discovery starting point (see chart above). With Alexa, this is going to become even more powerful. The same phenomenon has played out in China, wherein consumers prefer Taobao over Baidu as the primary top-of-funnel app, especially due to social commerce features.

Google needs deep commerce integrations to keep its search use case meaningful. At the same time, consumers will have high expectations from Amazon in terms of product search capabilities, especially on Alexa. I see their paths crossing a lot in coming years.

9. Globalization will be the acid-test for Chinese Internet companies

China is a huge market (both scale & monetization) — so immense that some of the most valuable Internet companies in the world today (eg. Alibaba) have been built purely on a domestic user base. The next 10 years will be interesting, as these companies have set out on the path to globalize (as a Founding Team member of Alibaba’s Globalization Team, I have had courtyard seats to this game). If these efforts succeed, China will shape the future of this planet in an unimaginable way (rivaled only by the entrepreneurial, innovation-driven DNA of the US).

10. 294 slides, and not a single one dedicated to India?

Barring a few mentions in some charts and tables, there was pretty much no analysis presented on India in this report. This is even more interesting, given the recent acquisition of Flipkart by Walmart for $16B, making it the world’s largest eCommerce acquisition by deal value ever.

With an economy growing at ~7% annually and a large mobile Internet user base that will soon rival that of China, combined with the likes of Amazon, Walmart, Softbank, Tiger Global and Naspers doubling down on it, India is definitely the 3rd digital consumer horse behind US and China. Though behind by a fair distance, it offers a great 10–20 year bet and an option that global majors definitely need to buy into while it’s relatively cheap. The key is whether these strategics & financial investors have enough patience to last in what is probably the world’s most complex & demanding market.

Note 1: I have consciously not written about other, more mainstream trends covered in the report (rising video consumption, emergence of voice, messaging apps continuing to grow, data as a key lever etc.) as they are more obvious and widely talked about anyway.

Note 2: Interestingly, the report doesn’t talk about Blockchain & Crypto much (barring a slide on Coinbase growth). If interested, check out my previous post on this topic.

Disclaimer: the above views are personal and don’t represent those of any organization I am part of.

Blockchain & Crypto – my aha moment!

Admittedly, I have been a bit behind my Silicon Valley colleagues & friends, in terms of ramping up on Blockchain & Crypto-currencies. Being deep in the eCommerce operating trenches, combined with frequent trips to Asia, has pretty much consumed all my bandwidth over last 2 years. However, with developments in the space evolving to levels that can’t be ignored, I finally decided to start researching on it.

Over last 2 months, I have studied all the core white papers (Satoshi et. al.), read numerous blogs by both the bulls and the bears, discussed it with numerous VCs in the valley, listened to many podcasts and seen numerous fireside chats on YouTube. While I got the mechanics of it early on, I have been waiting for my ‘aha moment!’ on it. All gigs throughout my career (IB, VC, tech startups) have pretty much involved ramping up on new sectors/ companies/ investment opportunities extremely fast (ranging from Oil & Gas, med-tech and enterprise s/w to search, eCommerce and logistics) and building an actionable POV. While furiously consuming content around these topics, there is always an ‘aha moment!’ I wait for. That point where I truly ‘GET’ the problem statement & the proposed solution in a very basic, first-principles kind of way. It just goes into my soul and from that point onward, I either become a strong ‘believer’ or ‘non believer’.

My ‘aha moment!’ on Blockchain & Crypto happened yesterday, while I was listening to this beautiful podcast by Andreessen Horowitz. I connected the dots between some of the points made in this piece, and some of my own learning and experiences. The following insights have turned me into a believer in Blockchain (& Crypto):

Users able to capture value that they helped generate in the first place — In all centralized marketplaces today (social, commerce, ride sharing etc.), it’s users like you and me that generate value for the marketplace (you and I post pics, buy and sell products, hail and give rides etc.). In these so-called “Supply-Demand” systems, you and I bring both supply and demand. However, think about it — do we really capture any economic or monetary value out of this (aside from the emotional utility)? I mean, I have been posting pics and content on Facebook for 10 years; in that period, Facebook has become a $500Bn market cap company. What has been my tangible gain out of it? Zilch! Of course, besides giving a social boost to my ego :). If the same products & systems are built on Blockchain, you and I would be rewarded with economic incentives (tokens, which can be used as so-called “currency”) for participating in them. Essentially, ‘supply-demand marketplaces’ will become ‘P2P networks’. The broker (read — companies that run these marketplaces), who took a fat commission for running the place (read — ad revenue, subscriptions, market cap), gets eliminated. Economic value, instead, accrues to users who are anyway, driving and generating value in the network.

2. Skin-in-the-game — I have been a big fan and follower of Nassim Nicholas Taleb, ever since my Investments prof. handed me a copy of ‘Black Swan’ 10 years back. Just finished reading his new book ‘Skin in the Game’ — this concept has always come naturally to me and something that I feel, is poorly understood in the venture ecosystem (implications for angel/ VC deals, advisory gigs, CEO comps, founder equity dilution etc.). Connecting the dots, decentralized networks create perfect skin-in-the-game’. You participate in the network, contribute value to it, help to keep it going, and for that, you get awarded economic incentives accordingly. In this scenario, you can’t blame a broker/ intermediary/ 3rd party for f**king things up. As Nassim Nicholas Taleb says in the book — “it’s much easier to macro bulls**t than micro bulls**t”.

3. Economically-viable biz models now possible for open source — open source has arguably been one of the biggest movements of human-collaboration and generosity in last 20 years. We wouldn’t know the Internet the way it is today, if it weren’t for OSS. Sadly, due to lack of economic viability of several open source projects, they have been typically run more as ‘academic’ or ‘enthusiast’ projects, rather than commercial ventures that attract the requisite talent and capital (personally for me, the decline of Mozilla has been extremely sad). This all changes via Blockchain-based projects, wherein the participants who contribute and drive the project, get economically rewarded with ‘tokens’. Also, as an investor or even just a supporter of a particular project, you can ‘invest’ in a project alone (no formal ‘company’ incorporation is required) via buying these tokens. The network driving these projects can now potentially raise institutional capital — as the protocols being created by these projects start getting traction, the tokens go up in value. The ability for open source projects to be transformed into commercial ventures that can attract resources, is huge!

4. Reverting to the ‘Tribe’ — human beings are essentially wired to operate in ‘Tribes’. Be it our desire to stay in communities, create social groups or even what we call “herd mentality”, the tribe manifests in all these ideas. At a meta level, I am viewing Blockchain as a tech manifestation of ‘human tribes’ — people getting together to build stuff & deciding how it should work and grow, and using the tribe to drive progress of humanity. It resonates with the basic DNA of humanity!

Is Blockchain the right technology for re-imagining every problem? Definitely not. Will crypto-currencies replace traditional fiat in near future? Probably not. Will Blockchain based systems completely replace traditional enterprise s/w? Looks unlikely, especially given its nascence and untested scalability.

Blockchain, or any technology for that matter, isn’t a silver bullet. But now that my ‘aha moment!’ has happened, I have at least started thinking around Blockchain & Crypto in terms of the “what-ifs?” and “why nots?”.

Closing words — real-life use cases, and not the technology itself, will decide the future of decentralized systems. Remember, use cases always….always win over just a technology!!

Bonus point on investing in crypto-currencies as an asset class — they are volatile, no-one can time them or predict future movements (for that matter, no one can also time the stock market, interest rates, inflation etc.), no one really knows which currency will survive after 10 years (you can see individual market caps to check out relative adoption as of today). Agree with all this, but I really like how Chamath Palihapitiya puts it — the beauty of crypto-currencies is that it’s completely uncorrelated to all other asset classes (like stocks, bonds, real estate, gold etc.). And as any finance guy will tell you, that’s a beautiful hedge to have in life. Just in case the world goes to s**t (the current financial systems almost got wiped out in 2008, and from what I see, the same risk-taking behaviors, derivatives, inflated valuations etc. are still around), even a small, really small allocation of personal networth in crypto-currencies could save the day!

What has been your ‘aha moment!’ on Blockchain & Crypto? Are you a believer, non-believer or ‘on-the-fence’? Do share your thoughts.

PS: Thanks Robin Sharma for educating me on the concept of Tribes and Naval Ravikant for inspiring me to ramp up on Decentralized Systems.

Disclaimer: the above views are personal and don’t represent those of any organization I am part of.

Optimistic Arbitrage

Have been thinking about a new mental model for early stage investing (angel till Series A; dynamics are different Series B onward) — I call it “Optimistic Arbitrage”.

‘Optimistic’: the art of seeing beyond “what is” and “what is reasonably expected”, to “what if” and “what it could become”. Proof points for the former are traction metrics while the latter is driven by vision, belief and a unique world-view.

‘Arbitrage’: ability to see what the ‘market’ isn’t seeing in an opportunity. In my experience, this can be split at a macro-level into 1) ‘team’ arbitrage — seeing in people what others don’t see, looking beyond traditional pattern matching, recognizing non-obvious talents, and 2) ‘opportunity’ arbitrage — spotting a problem that exists or will exist soon enough, but which isn’t yet obvious or sexy enough for the ‘market’ at large.

One of my realizations is, to effectively pull-off ‘Optimistic Arbitrage’, you of course, need to have a certain kind of personality (positive, believer, low tolerance for cynicism, less complaints and more execution). But more importantly, you need to be enriched by diverse life experiences & exposed to a variety of business, cultural & personal contexts-this essentially, creates a strong ability to connect the dots & look beyond the obvious.

Moving one step a day towards true leadership….

Have been thinking a lot lately on what true leadership really means. Back in Jan 2014, I moved from doing Venture Capital in India to becoming a tech operator in Silicon Valley. Life has been a roller coaster since then…to say the least. Met people that willingly ‘punt’ on quality talent, as well as jacka**es that suck the life out of them. Worked with some awesome individuals, as well as shockingly dysfunctional teams. Experienced world changing visions, as well as weak products that did no justice to them. Each day has been fun, gut-wrenching and full of countless moments wherein I have questioned all my assumptions…and life choices.

In particular, one question, more than others, stares at my face daily — “What does true leadership mean”? No matter how many management books, expert blogs and leadership training you go through, none of them gives you solutions to the ambiguous problems that life throws at us — what to do when a team member who is well-intentioned and great at the job, is actually destroying team culture? How do you give feedback to a senior leader? How do you communicate in a different country’s culture where even the language isn’t shared? How do you react in a political work environment — do you participate or stay away from it?

To counter these situations, the advice always is “to do the right thing”. But what is the “right thing”? Isn’t the “right thing” always contextual? What if your “right thing” is different from my “right thing”, given our different personal compasses?

I have no answers to these questions — perhaps, navigating these challenges successfully day-after-day, year-after-year and decade-after-decade is what creates true leaders. Standing today, to me it seems true leadership is a path, a journey, a series of battles that need to be fought (not necessarily won!). You have to be brave enough to walk down this path, and keep walking. Even with all the business knowledge, models, frameworks and networks in the world, nothing can quite prepare you for this journey. You just have to experience it, fall down, cry, curse, get up, learn from it, move on and make the best of it. And maybe…just maybe…years later…you would have moved closer to becoming a true leader. After all, it took more than 25 years each for Mahatma Gandhi and Nelson Mandela. And they were still questioned!!

Personally, as I have started walking down this path over last few years, following Robin Sharma and Sadhguru has given me fundamental concepts and energy that has helped me tremendously. What has helped you as you walk down your own path? What is your idea of true leadership and doing the “right thing”? Would love to hear your thoughts.

Will leave you with this quote by Robin Sharma that has left a huge impact on me — “To lead is to serve”.