Internet Trends and Internet Values

This week, Mary Meeker of KPCB has released her “Internet Trends” report. I look forward to the release of this report. While I rarely can sit through a nearly-200-slide presentation, the insights in here always are thought-provoking and make it worth my while. I remember Meeker back in my Morgan Stanley days – unfortunately, I never had the privilege of working directly with her.

If you have anything to do with the technology business, read it. Actually, since, as Marc Andreessen said, “software is eating the world,” if you have anything to do with any business, read it.

Whenever the report comes out, I try to find some interesting observations and insights from it, and write some articles as “Internet Trends” VAR = Value-Added Reader.

Early on, slide 6, Meeker points out how much the economic value of Internet businesses has grown. The cumulative market capitalization of the top 15 Internet companies has grown 144x in the last 20 years:

  • 1995: $16.75BN
  • 2015: $2.42BN

Of course, we do have to take inflation into account. According to the official CPI calculator, $16,752 in 1995 is worth $26,007 in 2015. Clearly some portion of the change in value is just plain inflation. So in 2015-adjusted dollars, we have a growth of “only” 93x.

  • 1995: $26.01BN
  • 2015: $2.42BN

What explains this phenomenal growth? Yes, the Internet is far more important, but 144x?

I believe the response is two slides earlier, where meeker describes the online population. The number of people online in 1995 was ~35MM, while the number of people online in 2014 was 2.8BN.

I propose we evaluate the “valuation per Internet capita”, or “vPIC”. Let’s look at those numbers again, adjusted per person on line, or “per Internet capita”:

Year19952015
Total Valuation (2015 dollars)$26 BN$2,416 BN
People online35MM2,800MM
Valuation per Internet Capita$743$862

As the table shows, the value per Internet capita has risen from $743.06 to $862.61, about 16%. Essentially, the 144x increase in valuation of Internet companies from 1995 to 2015 has been almost entirely due to the increase in numbers of people online. As Internet companies’ Total Addressable Market (TAM), their valuations have increased almost in lockstep.

What are the effects of this change? As the number of people online has begun to peak – a third of the population of  the planet is online – the room for total growth will peak as well. There is still room to grow with only a third of the planet online, and Earth’s population will continue to grow, as will GDP in each country and globally. However, future growth in value will have to come not just from having more customers, but will require more benefit to existing customers.

In some ways, these help explain the rise of “efficiency” companies, mentioned prominently in the report. Uber makes better use of car resources, while Airbnb does the same for residential real estate. Square and Stripe make better use of human time handling payments, while DocuSign does the same for contract signing. Any of these is a great improvement, but the efficiencies will be measured in double-digit percentages, in some cases perhaps even multiples, but rarely if ever on the scale of 144x over 20 years.

Lots of room to grow, but the source will change… as it always does.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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