The Internet tailwinds that propelled Silicon Valley’s meteoric growth for decades are stalling out. The ripple effects will jolt the tech industry.

In the late 1990s, the tailwinds began when Internet usage surged from a nerdy hobby on the West Coast to a global household necessity. Since then, the Internet has consumed an ever-increasing percentage of consumers’ time and money. Smartphonesand social networks became ubiquitous.

These tailwinds swept businesses, too. Enterprises SaaS spend has skyrocketed by more than an order of magnitude. A Cambrian Explosion of cloud infrastructure and business tools shattered capex barriers to starting companies.

As market tailwinds grew at 20%+ CAGR, the market dynamics shifted so quickly that incumbents couldn’t react, leaving room for startups to emerge. When SaaS spend grew 50% per year, it was hard not to find green pastures as a new software startup. And consumers doubling their Internet spend and smartphone usage simultaneously every couple of years opened a massive window for new mobile applications.

The current exponential growth in VC fundraises, startup projections, and valuations for the past two decades all assume these tailwinds will continue in the 2020s. Many valuations are derived from expanding public multiples of next-twelve-month revenue, which in turn assume continued exponential market expansion. But if you look at these supposed tailwinds today, a gloomier picture appears: they are not exponential functions, but logistic functions with plateauing growth rates.



read John Luttig's full article here

 

72.7% of Americans own a smartphone. 18.6% of Americans are under age 15. When you have 90% penetration into the addressable market, it's not surprising that growth is low. These growth rates aren't falling because these businesses are slowing down; it's because they've already won to full saturation of their addressable market. Leading 12 month revenue for these businesses does not presume continued exponential growth.

 

The latest survey figures from Australia state smartphone ownership is 91%, so maybe the US market still has some room for growth?

 

I know for social network companies, a lot of future growth is the monetization of their users and not just capturing more users. There's a lot more facebook can do than advertise. They bought a VR company which they could use to create worlds where people can meet. What are the sales on VR units, right? That could be(is?) a whole other industry. Now with coronavirus, we could all be in virtual cubicles talking at the virtual breakroom. I digress, but I imagine the goal is to eventually be your passport/id like in Minority Report w/ Tom Cruise.

That is an interesting graph though. I'd like to compare it to other industries too though to get some context.

 

Very interesting article. Thanks for posting @Tony C.

 

It's almost like the tech sector is maturing, and not the wild west anymore... They are becoming real companies/ businesses that have long-term things to plan for, and employees to take care of. I'm frankly surprised it has taken this long. 'Tech' is just another industry these days to the young 'uns.

 

"A chicken in every pot and an iPhone in every hand"