Friday, July 17, 2015

Mary Meeker's Latest, Part 2

"The Arcadian or Pastoral State", from Thomas Cole's "Course of Empire" series, 1833-1836 (source:

Civilization is a movement and not a condition, a voyage and not a harbor. - Arnold J. Toynbee

Today's editorial is the second installment of a review covering Mary Meeker's annual Internet Trends report. The first part of the review can be found here:

Mary Meeker's presentation can be viewed at this link:

In the first half, Meeker gave an overview of the latest developments in the internet and smartphone markets, shrewdly identifying how their fortunes are bound together, as well as exploring the growth potential for both in the developing world. The continuing evolution of internet advertising was detailed, along with messaging apps and their potential for becoming communications and e-commerce hubs for the internet. Along the way, we looked at the social and political implications of the developing world gaining increased access to mobile technology and the internet. We also examined the limitations the screen sizes of mobile hardware platforms impose on further internet innovation and its implications to the High Technology sector.

Today's essay is of a very different character. After page 66, Meeker's report  scrutinizes current mobile computing users, infrastructure and enterprise issues, and a broad variety of macroeconomic factors. It is the kind of report I've always wanted to see from Meeker and her analyst team, but I have been continually disappointed year after year - until now. 

Mary Meeker's data provides substantive quantitative proof that we are in the early 'arcadian' stages of a genuine metamorphosis across the globe - a set of economic, political, technological and social changes which collectively are reshaping the world, bringing with it a new beginning of seemingly endless possibilities whose effects will echo for centuries to come. This portion of Meeker's report is truly extraordinary and merits exploration in depth.

Part 1: The Millennials

Pages 68-70

Last week we discussed how most of the Internet's content was created and driven by users, as opposed to commercial or government interests (thankfully; otherwise, the internet would be a dreadful and dull place indeed.) Meeker identifies the Millennials (a term first coined by the demographers William Strauss and Neil Howe for Americans born after 1981, which Meeker narrows down to the 12-24 year old user base) as the driving force behind internet innovations and trends. This is, of course, to be expected - the Millennials have never known a world without mobile telephony and internet connections and are thus completely at ease with it; furthermore, the consumer goods sector has targeted primarily the younger generation since the 1960's, riding the surges of their swiftly changing yet intense fads.

Currently, Millennials are thoroughly infatuated with social media - a portion of the internet which, though it may become a vital and complex communication & business channel on the internet one day, is currently in a form which an old fuddy-duddy like me detests intensely. Their preferences are evolving quite rapidly, as the Millennials gravitate away from text-centric and chatty social media channels towards ones where only the briefest of message snippets and, more importantly, pictures & video can be quickly accessed or disseminated. We can also see that Millennials regard their smartphones not merely as convenient business, communication or research tools (like Generation X feels about their laptops), but as indispensable instruments for day to day living, staying in constant contact with their social circle, keeping up with the latest events in the world at large and pursuing infinite variety in their never-ending quest for distraction, novelty and entertainment.

Pages 109-114

The Millennials are also now becoming a major segment of the workforce, bringing changes in attitude, interests and approaches to the workplace. What Meeker's survey data reveals is intriguing:
- Corporate pension and benefits programs hold little appeal to Millennials, in stark contrast to the Boomers (who are all now approaching or beginning their retirement years.)
- There is significant interest in learning and training - always an excellent sign.
- They have a strong preference for flexible working hours. Does this mean that Millennials by and large lack of discipline? Or does this reflect their desire to exercise creativity? Maybe the rejection of a classic office environment reflects an antisocial streak. Perhaps it's a combination of all three.
- Since Millennials are indelibly tied to their smartphones, it seems that they want to be able to use their smartphones at work as well.
- Cash bonuses are the favored mechanism for acknowledging superior work contributions. This suggests a healthy doubt of the value of stock options.

Overall, the data suggests that Millennials believe they will be ultimately relying on contract work to put bread on the table. They either do not particularly desire fixed employment or believe they will not be able to depend on long term positions with one enterprise. This could explain why they want flexible work hours (so as to be able to handle multiple part time contracts.) Conceivably this is also why they feel comfortable using their personal smartphones for work and downloading work-related apps on their own dime.


Now civilizations, I believe, come to birth and proceed to grow by successfully responding to successive challenges. They break down and go to pieces if and when a challenge confronts them which they fail to meet. - Arnold J. Toynbee

Every generation that enters the workforce obviously hopes to have satisfying and successful careers. Their willingness to trade off between degrees of freedom and security vary, as well as the economic prospects available to each generation. 

Yet the Millennials are unquestionably different. This is a generation that has completely integrated mobile computing into their daily lives and has grown up with the internet and the 24 hour news cycle. It is also the first generation in perhaps a century which believes it is unlikely that they will have a higher standard of living than their parents.

Flexible work hours, a sense of independence, a desire for creative/satisfying work, tangible cash bonuses, preferring the physical distance imposed by smartphones rather than meeting face to face..........there's a number of ways to interpret these survey results. Undoubtedly there is a strain of narcissism among the Millennial ranks. After all, it is a demography that has been raised almost completely without corporal punishment at school or even at home. It is also a generation that has been constantly told by parents, teachers and other authority figures that they are individually special snowflakes. For instance, I was struck by the fact that many of my FB contacts who are raising children were attending ceremonies in June for their kid's graduation from Junior High and even grade school. I do not fault the parents for supporting their children. However, the idea that public schools were inculcating the idea in the heads of kids that this was some sort of notable achievement left me dumbstruck.

Yet there is a flip side to this coin which defies the Boomer and Gen-X'er conception of Millennials and instead reflects how Millennials may think of themselves. After all, they grew up during a time of tumult, upheaval and frequent reversals of fortune - the 1987 stock market crash that was followed by over a decade of stunning economic prosperity (the "Roaring 90's") subsequent to the collapse of the Iron Curtain, then the 2001 DotCom implosion, the 9/11 attacks and subsequent wars, the housing bubble cycle from 2002-2008 and the continual economic under-performance and uncertainty since then, shadowed by the explosive growth of Federal, State and Municipal debt. All during this time, Millennials experienced the gyrations of their family's economic fortunes, with Mom and Dad both having to hold down jobs in an increasingly layoff-happy business environment while constantly losing financial ground every year as wages consistently failed to keep pace with the cost of living (a phenomenon that began early in the Millennial era - around 1987, in fact.) The largest percentage ever also experienced the shattering of their nuclear family, as their generation suffered the highest divorce rate in the history of the nation.

When viewed in such a light, one can see how Millennials might be better described as having more of a 'lone wolf' attitude, manifesting itself as a distrust of corporate institutions, an urge to define a career path and working lifestyle that could ride out periods of economic uncertainty and - to be honest - perhaps a touch of Asperger's syndrome with regards to social affiliations.

The Millennial attachment to mobile technology and the internet can also be considered from different angles. From the Boomer and Gen-X point of view, Millennial dependence on smartphones - experiencing their lives as a constant barrage of cryptic messages, photos and videos thru a tiny screen - looks like a life constantly spent 'in the moment.' One gets the impression that Millennials are completely uninterested in contemplative pauses or periods of quiet solitude. Does this mean that thinking and face-to-face social discourse, activities which have been part of the human experience since the dawn of time, are things of the past? Is the future to be like Aldous Huxley's "Brave New World", where people flit from one moment of fun-seeking to the next, perhaps imagining through their shared selfies and videos that they are the star of their own life movie?

Such a society cannot possibly constitute a viable social polity. Yet things may easily appear to be headed in that direction if you are, say, older than 35. I remember a time in the 1960's and 1970's where television was referred to as "The Idiot Box" and how it was destroying the fabric of society, substituting for family conversation at the dinner table and causing the disintegration of social institutions. Those of us from older generations could readily come to the conclusion that smartphones are filling such a role with even greater destructive effect.

Yet a Millennial might find such a characterization both objectionable and perhaps even bizarre. The way many of them see it, social cohesion is stronger in their generation because of their ability to stay within easy reach of each other to share experiences and information. 

There is also a clue to their thought processes hidden in the way they prefer to communicate and interact with the world. Millennials are exhibiting a new way of thinking - where texting forces people to think through what they want to communicate and condense it to maximize informational value & efficiency. Furthermore, the heavy use of images and videos conveys far more than the written or spoken word can alone. One can provide far more detail with greater brevity and communicate important secondary information such as emotion and context.

Strauss and Howe think the Millennials (whom they define as anyone born in the United States from 1982 to roughly 2002-2007) as the next GI generation. That's quite a set of expectations to meet, as the original generation with that name emerged from the Great Depression to win WW2, invent the transistor, personal computer and laser, break the sound barrier and put six flags on the moon. We'll have to wait and see to determine how well the Millennials fill those shoes.

Part 2: Micro & Macroeconomic Factors

Pages 120-122

This portion of the presentation could be entitled "The Revenge of Sears & Roebuck", as retail box stores continue to decline in the face of a relentless onslaught by internet companies delivering consumer goods by mail. One would imagine that this sector will soon start undergoing speciation in a pattern similar to that of conventional retail, with high, middle and low end web stores either generalizing their offerings (like Amazon or Alibaba) or specializing in consumer niches, competing on price, delivery, quality and after-sale service and support.

Pages 88-89

A major obstacle to the internet conquest of conventional retail, however, is the problem of ensuring that transactions and customer information are genuinely secure. The issues, surprisingly enough, are now less technical and more in the human sphere, as the culprits of security breaches are increasingly insiders, while the people with the security, data, networking, virtualization and investigation skills to prevent such data losses are in short supply.

Pages 90-92, 99, 139-146

In these pages, Meeker discusses some of the effects she and her analysts are observing on the job environment. This is the second segment I've found where Mary Meeker deserves some criticism.

Because of the nature of her work, Mary Meeker demonstrates a certain "tech" bias. There can be no doubt that the mobility of data and communications today has implications for "knowledge workers." However, her definition of "knowledge worker" is too restricted. I've seen carpenters, electricians, plumbers, cable TV & internet technicians, roofers, appliance repairmen, auto mechanics and even retail workers pick up their smartphone to reference catalogues, specifications, regulations, contracts and other information to answer a thorny question, find needed parts/materials or otherwise find solutions for complex problems. For instance, I remember dealing with a skilled plumber two years ago on a disastrous plumbing problem who, during the course of work, had to discuss with me a variety of issues concerning regulations and contract law.

Stated differently: blue collar jobs, which were considered restrictive, boring and somewhat repetitive in the 1950's can now be increasingly considered as "knowledge" jobs. When one takes this into account, page 99 of the report loses most of its value.  

Meeker further demonstrates a surprising lack of perspective by calling for 'productive' regulatory involvement in the industry. Perhaps her Wall Street background, where pervasive regulation is a historic norm (though obviously no longer enforced when and where it matters the most) has made her somewhat comfortable with comprehensive and detailed regulatory environments. 

However, what may be necessary and proper for the millenia-old banking industry does not correspondingly apply to a new, dynamic and growing sector such as the Internet. If anything, a heavy government presence on the web can only lead to inefficiency, confusion, reduced innovation, malinvestment, extra cost and friction. Regulators can never be as responsive, expert or up to date on an industry as sector participants themselves and are much more likely to hinder than help.

The smarter call to action would be to pressure state and federal agencies to stop trying to 'help' and instead get the hell out of the way. Mary Meeker really blew it on this one.

Pages 126-138, 147

In this portion of the report, Meeker provides an overview of the growing trend towards freelance and contract work in the USA. Though Millennials will be generally pleased or at least unsurprised by such a development, this is not a circumstance to be celebrated.

From personal experience I can tell you, dear readers, that there are advantages to freelancing for a living. The variety of tasks tends to make the work much more varied and interesting. You also never feel like you're simply pushing paper around in make-work projects so a senior manager or executive can produce fodder for his superiors to justify a headcount or department budget while harder but more relevant problems go unaddressed. Nonetheless, relying on contracts and piece work to earn a living makes it very difficult to plan for the long term. It also makes the prospect of taking some time off for R&R not only unattractive but somewhat frightening.

The truth is that even gypsies and nomads like to settle down for extended periods whenever the opportunity presents itself, as always being on the move and worrying about your next meal gets to be a drag. Furthermore, such workforce phenomena do not exist in strong,healthy economies. The rise of temporary & piece work means that demand for full time workers is fundamentally weak. Page 147 is especially revealing in this regard. Either Meeker has glossed over this so as to not include negative messages in her report or she does not fully recognize the gravity of the situation.

Part 3: Changing of the Guard


On this showing, the nature of the breakdowns of civilizations can be summed up in three points: a failure of creative power in the minority, an answering withdrawal of mimesis on the part of the majority, and a consequent loss of social unity in the society as a whole. - Arnold J. Toynbee, "A Study of History"

Pages 95-98

One could label these pages "The Decline of the West." The graphs paint a very clear picture - the United States and the West in general, having de-industrialized and moved towards a 'Services Economy' model, seems content to play financial games that more than anything else resemble a Vegas casino, with the central government and finance industry playing the role of the House and everyone else as the marks, while the East has pursued lasting value and concrete wealth creation by industrializing their respective economies.


There are still some economists who protest that the Service Economy model is superior as it allegedly frees up worker creativity to design and refine things, as opposed to Industrial economies where laborers are imagined to spend their days pulling levers & cranks and otherwise behaving as if they had been reduced to mere cogs in a giant machine. Nothing could be further from the truth, of course.

Industrialized economies are better at producing innovation and value. In order to manufacture a product, one must first design it. Those same designers are then immediately available to observe results and receive feedback from manufacturing on how to alter successive designs in order to improve yield, quality, reliability and functionality. It is from this feedback process that true invention and innovation blossoms.

Some argue that industrialized economies tend to prosper to a point where they lose their cost competitiveness and then must perforce move to a Service model. This is a ridiculous assertion, as proven by the likes of Taiwan, Korea, Switzerland and Germany, all 1st World countries who have by and large maintained their industrial capacity. Intel serves as another clear example, as it is the largest and most profitable semiconductor company in the world, with all of its foundry capacity held domestically in the USA. 

The real reason for the loss of Western industrial capacity to the East lies in the floating currency regimens instituted by EU and the United States which allowed eastern competitors to peg their currencies against the USD and Euro in foreign exchange markets in order to preserve their cost advantage and prevent normal pricing mechanisms from self-correcting the imbalance. To put it more directly: the shortsighted financial scheming of Western financial institutions, central banks and governments are to blame for the de-industrialization of America and much of Europe, with the wounds to their respective national economies being self-inflicted.

Industrial economy workers also develop a great many skills in order to perform their job functions properly. There is a reason why the AFL-CIO includes the Congress of Industrial Organizations, a once gigantic labor union whose base consists of machinists, carpenters and other skilled and specialized industrial tradesmen. 

By way of personal example: my father's aunt Millie was a wonderful woman who, her terminally runny spaghetti sauce notwithstanding, was a joy to be around. Aunt Millie married a Frenchman by the name of Louie, a robust and stocky fellow with a warm and jovial spirit who had a penchant for cigars. Louie had emigrated to the States when he served in the French equivalent of the Merchant Marine. One day in the 1920's, his ship pulled into New York Harbor, whereupon Louie disembarked to take shore leave and, deciding he liked the place, never went back. He took a job with a die shop in northern New Jersey and became a skilled machinist. 

I remember Uncle Louie very fondly, sitting on the front porch of his modest two story home in Tenafly, New Jersey, puffing on a stogie and holding that giant Great Dane of his at bay so it didn't make a meal out of the postman. Uncle Louie was not a fellow who took to book learning - his mind didn't work that way. But he was not an ignorant man or a stupid one. He was a gentle father and good husband, took great care of his home and was clearly a craftsman.

Service economies produce far fewer of those sorts of skilled laborers who are masters of a trade. This does not mean that service workers do not put effort into their jobs - America's labor force is still the most productive, hardest working and most educated workforce on the planet. But the kind of service one can provide depends on one's knowledge - and that depends on the quality of an individual's schooling and their aptitude for succeeding in a formal education system.

As every parent knows, educational standards vary widely between states and even between towns in the same county. In a Services economy, the advantage accrues to those who have access to the best formal education and who excel at it. This tends to concentrate success and wealth in a smaller and smaller group, which eventually begins to collude among its members to preserve their position of eminence for their descendants.

Look at any of the non-industrialized countries of the developing world. Their demographics consist of an 80%-90% who scrimps, scrounges and struggles to get by, a 10%-15% who keep the 'gears' of society turning, and a 1%-5% who rule the roost and control most or all of the wealth-producing assets of the nation - agricultural land, cattle, banks, mines and such. Those in the top 10%-20% are by far the most literate, well-trained and well-educated, with those at the very pinnacle of their societies often receiving a university education in the West. Such economies take on the characteristics of feudal societies, with an accompanying social and economic stratification.

Service economies inevitably begin to devolve along similar lines. People who aren't particularly good at 'book learning' but who nevertheless could be capable craftsmen have far fewer opportunities to learn a trade in a Service economy than in an industrial society. Those who do have an aptitude for a formal education will receive different levels of quality in their scholastic experience based on their economic circumstances - after all, an electrical engineer who gets his degree from San Jose State may be a hardworking and bright person, but has not learned from the same caliber of instructors as someone with a BSEE from MIT, Rennselaer Polytech or Stanford. 

When viewed in that light, one can see that a Services economy is not an advancement, but is in fact regressive. It leads to a society where most of the economic and, eventually, political power gradually gravitates towards a small cross section of society. Consequently, income gaps grow substantially, educational opportunities become highly restricted and social/class mobility is materially reduced. 

Pages 107-108

Though these slides are specific to the United States, the phenomenon of declining family sizes and birth rates is a long-standing one across first world economies and is less severe in America than Europe or the Far East, including China. What is most surprising is that the developing world is experiencing this as well, making it a worldwide phenomenon. Even India, which has long struggled with population issues, has reached a birth rate which now is barely high enough to replace losses and maintain its current population level.

Notwithstanding the frantic and panicky apprehensions of the profligate political class in Europe and America who worry where their future voting blocks and taxpayers will come from, there are clear advantages to a reduced global population simply from a resource point of view. Shrinking birth rates are often interpreted as a sign of increasing economic prosperity as well. Yet birth rates can also decline when a population is gravely worried about its future prospects. Overall, I'd guess that the worldwide birth rate decline stems from a bit of both - with the dividing line very roughly running between East and West.

Pages 151-171

This part of the report focuses on Internet developments in China and India. Meeker sees China currently leading the way with enormous growth in social media, e-commerce and the domestic smartphone sector (though as discussed before, China's smartphone market has also stagnated, in conjunction with the saturation of the WW market.) Xiaomi seems to be getting a head start in connected home applications and consequently appears to be the current front runner in China's IoT market. Mary Meeker views India as just getting started on the industrial growth curve that China began two decades ago. Nonetheless, India is somewhat farther ahead than that regarding the Internet - especially with respect to mobile apps. 

Pages 173-174

In these final pages, Mary Meeker offers some very thought-provoking data on both public and private companies. What caught my eye were some of the valuations on page 173. Notice, for instance, the Apple valuation that is 3.8x its $200B in 2014 earnings. Contrast that with Google, whose much less impressive growth rate, product offering, record of product innovation and annual revenues nevertheless merit a 5.5x valuation on Wall Street. To compound this absurdity is the ridiculous 18.5x valuation of FB - a company with essentially no products.

I have come to the conclusion that stock valuations nowadays are almost completely based on the "greater fool" theory of equity pricing. For my money, folks, I'd feel safer going to the track and betting on the ponies.

Page 174 bears some scrutiny as well. The graph implies that we are still safely free of bubble worries in Web 2.0 financing. Yet if one looks at private financing volume only and adds it up over a 5 or 6 year stretch, the Dotcom bubble and today's VC exposure to Internet startups are at virtually the same level - just over $200B.

The debate over whether Web 2.0 investment has reached the same frenzied state as the late 90's is being hashed out in the press as well:

I'm not a cynic, but the fact that this argument has been occurring in the MSM for a good six months and industry pundits are calmly proclaiming that there really isn't anything to worry about strongly indicates to me that the problem is real. I fully expect heavy writedowns by VC's and Wall Street firms for bad debt in the Web 2.0 sector will begin before the year is out.


Despite a few disagreements and a bit of faux ingenuousness & sleight of hand in the report, I found Meeker's presentation to be fascinating as a whole. Mary Meeker and her team are extraordinary. I hope all of you enjoyed exploring this slide deck as much as I did.

I hope you all got a kick out of the embedded videos as well and are picking up on some of the hidden messages. I'll be doing more of this in the future, though the musical themes and styles will vary from time to time, depending on the editorial.

Speaking of which:
I regret to inform you, dear readers, that for the near future I will be unable to continue posting on my usual 1x/week schedule. The client portfolio has grown to a point that I simply cannot spend the same amount of time blogging as I have. I am, however, grateful to even have a readership and hope to continue providing you interesting information on the comings and goings in the High Tech world on a bimonthly basis. Thank you for being an audience for my musings.  :-)