Smartphone Disruption and GAFA.

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Courtesy of Apple.

The most perceivable whitespaces are filled in with mobile. However, there are still opportunities. The underlying platform in markets long resistant to innovation is now mobile first. Full-stack entrants are now able to penetrate markets like healthcare and financial services by building products and distribution native to mobile. Ultimately, they are crafting customer experiences orders of magnitude better than before.

It’s true that smartphone innovation has plateaued the top of the S Curve. What’s new is more incremental than transformative. But incremental advances are underrated. The commoditization of LBS and mobile app reliability spawned Uber. Instagram leveraged improved mobile cameras and increased bandwidth.

Face ID, AR Kit, and Neural Engine are major upgrades for the iPhone (and similar flagship Android devices): the ability to track facial expressions, augment and understand real-world surroundings, and compute powerful neural networks are all powerful new primitives for smartphones. These additions are all new compelling “why now opportunities” for startups.

The current use cases appear trivial, like Animoji, but the next big thing always starts as a toy. AR is the most significant advancement of computing interaction since multi-touch replaced the mouse, which replaced the command line. Challenges around miniaturization and computer vision remain for AR devices. The use cases are also still unclear.

With the advent of AR Kit and AR Core, mobile AR will be a central testing site for groundbreaking applications. While the install base is already massive, most smartphone cameras lack stereo vision and depth computation. Making high-end smartphones cheaper—a trend that will continue—is key to accelerating adoption. It is likely that the next major AR consumer startups get their start on mobile.

It’s evident the “smart” phone is an anachronism today. In 2012, Matt Cohler noted the best mobile apps were a ” remote control for real life.” People spend less time using smartphones as phones, but a control for the real world. When assessing the next great platforms to usurp smartphones… “what is better than a remote control for real life?”

Eventually, the functions, rather than the physical object itself (smartphones) will take center stage. The core technology will be absorbed into other products and venues—like AirPods with voice and audio. As Jordan Cooper notes, “Siri will be exposed via an always-on mic interface in future generations of AirPods.” I expect a Cambrian explosion of products and business models native to voice and audio.

The near-term potential for AirPods is voice-user interfaces. However, the ear is the perfect place to place biometric sensors. In the potentially not too distant future, AirPods will enable biofeedback-interfacings and brain-computing interfacings. The disruptive and transformative impact is clear. Biofeedback will replace surveys and likes, brain-computing interfacings will replace multi-touch.

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Courtesy of “Disruptive Interfaces & The Emerging Battle To Be The Default” by Scott Belsky.

Whether it be AirPods, Magic Leap, Alexa, etc., emerging platforms are doing things better than smartphones or doing things smartphones can’t. New computing platforms will displace smartphones by making the user experience more efficient and cheaper. They eliminate friction to products and services (like browsing) and even transcend human reason (via ML). Today’s primary levers of competitive strategy will be excluded from the moment where customers make decisions. As Scott Belsky notes, “‘closed’ user experience built on top of a wide open and hotly competitive ecosystem of services.” The rise of disruptive interfaces will have tremendous secondary and tertiary effects on consumer behaviors and customer demands.

Many of today’s business models around mobile will atrophy. They will not only fatigue but will be incompatible with future computing platforms. Countries that have leapfrogged Web 1.0 infrastructure to go straight mobile-first have business models more reflective of the future. In China, media businesses have emerged with revenue models beyond traditional advertising.

These business models (like subscription) are an intermediate step towards more efficient and discriminate value creation and capture. China is an interesting case study. It already has undergone app consolidation with WeChat. Third-party developers apps connect seamlessly to the payment and social functions of a user’s existing WeChat account. WeChat has become the primary interface layer for customers.

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Courtesy of Tips & Tricks for WeChat.

However, the concerns around mobile disruption are twofold: mobile’s scale and the meaning of disruptive innovation. Mobile disrupted PCs in the same way PCs disrupted mainframes. While mobile devices introduced a more advanced paradigm of computing, they achieved scale from a new and larger untapped customer base. Mobile’s install base is 3-5x larger than PCs with annual unit sales of ARM/iOS/Android at 10x the unit sales of PCs. It’s mathematically impossible for another platform to disrupt mobile through scale power because there are not enough people on earth.

Furthermore, many of the new platforms are not only dependent on the smartphone supply chain but are complementary products. As of now, VR, IoT, AR, and AI interfacing is still reliant on the smartphone and the smartphone ecosystem. Smartphones remain the default interface for consumers to access the web. While smartphone sales and upgrades have stagnated, sales and upgrades are inevitable. 5G will require users to upgrade as will the need to access high-end features.

This brings us to GAFA. Mobile has enabled GAFA with unprecedented scale. In their current period of dominance, GAFA has 10x the scale of Wintel. GAFA has an enormous distribution advantage to test new idea to wider markets. As customer acquisition cost increase for consumer products, companies like Google and Facebook benefit most.

GAFA has also leveraged their resources to remain influential in startups in health and financial services. While GAFA has commoditized basic enabling services around infrastructure, payments, and intelligence, this makes most startups dependent on GAFA’s ecosystem. While a new platform may usurp mobile, it’s a question on whether it’s able to usurp the GAFA ecosystem along with it.

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Courtesy of Stratechery.

I noted in “Technological Revolutions Should Make Our Future Better”:

Finding power-law returns is difficult in today’s consolidating market (GAFA). GAFA has massive distribution along with deep moats. The new incumbents are super-evolved organisms compared to their predecessors in Wintel and IBM. Investors and entrepreneurs are actively looking for the next insurgent platforms. The next S-Curves will need to have a tremendous market size but also have free and liquid distribution channels.

By 2020, more than 5bn people will have smartphones. GAFA has been particularly aggressive with global expansion. Facebook is aggressive with Internet.org to continue its scale. There is also still room to democratize access to high-end smartphones globally. GAFA (along with their Chinese counterparts, BATX (Baidu, Alibaba, Tencent, and Xiaomi) will only gain more competitive power as a result of these secular trends.

However, as Benedict Evans notes, “Microsoft’s moment of victory was in 1995 with Windows 95, yet that was also in hindsight the end of its dominance of tech, as the agenda moved to the internet.” In many ways, I think the rise of decentralized networks has the potential to commoditize mobile devices, and shift our attention away.

I expressed in Wellness: the Next Seven Deadly Sins”

Distribution changes as the customer purchasing journey and top of funnel discovery are disrupted. Business models not native to these new tech enablers and distribution methods will atrophy.

The offline and online world is increasingly becoming more integrated with technology. As wellness becomes ubiquitous in our offline lifestyles, it will dominate our online presence. The moats of today’s largest media businesses are more exposed than most imagine: convex growth via network effects can result in concave decay.

Given all the ad-fatigue and emphasis on user experience, it’s difficult to see how mobile-based ad revenue models are compatible with emerging technologies like AR, VR, and cryptonetworks.

I think this is why decentralization matters so much. It has the potential to reorganize the internet and create new networks native to new computing platforms that more efficiently and naturally connect desires, behaviors and values of today. I noted in When Moore’s Law Ends: the Computing Resurgence about the ongoing renaissance in more diverse computing architectures. From AOL, Web, and GAFA, cryptonetworks is a renaissance of the original internet by enabling trust and cooperation at an unprecedented scale.

If you’re an investor or entrepreneur building or thinking about any of these ideas, feel free to drop me a line.