Author: Benedict Evans

Within and tech M&A

Lina Khan, the head of the FTC, first became known for a law school paper arguing that US antitrust policy in recent decades has become far too narrowly focused on low consumer prices as the only test for harm, ignoring choice, competition and innovation, and that Amazon was an exemplar of this, since it uses its market power in ecommerce to push prices down, not up.

The paper was somewhat flawed by its unquestioning acceptance of the myth that Amazon sells a loss and is subsidised by investors, neither of which have been true for some 20 years, but the general analysis of US policy is perfectly valid, and while it wasn't really a new observation, the paper probably catalysed a shift in conversation about antitrust policy in the USA.

Of course, one could argue that this shift has also been driven by how much bigger leading tech companies have become in the last decade (simply because tech has become so much bigger), and how much more central to our lives (and politics) tech has become. There are plenty of US industries that look a lot less competitive than tech (meat-packing, for example), but tech is new and different and much more visible, and politically friendless. So it’s in the crosshairs, and Biden appointed Khan to the FTC with that mandate.

A second strand, meanwhile, is that this general shift in attitude towards companies with large market shares, particularly in tech, is accompanied by a new degree of attention paid (Read more...)

Back to the trend line?

Back in 2020, as we were all locked down and forced to do everything online, we got very excited about ecommerce penetration. All sorts of charts went viral showing that we’d jumped forward anything from three to five years in a couple of months. This was a big part of the ‘Covid Rotation’, and now we’re on the other side of that rotation - people went back to the office, and back to stores, and back on planes. And for retail and ecommerce, it looks like a lot of that growth was temporary, and we’re reverting to the trend line.

There’s a pretty obvious question in this chart, though - percentage of what? This is what the absolute numbers for US e-commerce look like. That reversion to the trend line suddenly doesn’t look quite so obvious.

The issue, of course, is that total retail sales have been far from stable, and so as the denominator has swung around, so has the e-commerce penetration. US ecommerce has, in fact remained at the new higher level - for now - but there has been a surge in physical (and, of course, inflation has suddenly shot up to 10% or so).

You can see this more dramatically in the UK, which had a much bigger lockdown and hence much bigger swings in the denominator and in the penetration. The penetration percentage has spiked all over the place.

Equally interesting, I think, is the question of which ‘retail’ number we should use as the (Read more...)

There’s no such thing as data

Technology is full of narratives, but one of the loudest is around something called ‘data’. AI is the future, and it’s all about data, and data is the future, and we should own it and maybe be paid for it, and countries need data strategies and data sovereignty. Data is the new oil!

This is mostly nonsense. There is no such thing as ‘data’, it isn’t worth anything, and it doesn’t really belong to you anyway.

Most obviously, ‘data’ is not one thing, but innumerable different collections of information, each of them specific to a particular application, that aren’t interchangeable. Siemens has wind turbine telemetry and Transport for London has ticket swipes, and you can’t use the turbine telemetry to plan a new bus route. If you gave both sets of data to Google or Tencent, that wouldn’t help them build a better image recognition system.

This might seem trivial put so bluntly, but it points to the uselessness of very common assertions, especially from people outside tech, on the lines of ’China has more data’ or ‘America will have more data’ - more of what data? Meituan delivers 50m restaurant orders a day, and that lets it build a more efficient routing algorithm, but you can’t use that for a missile guidance system. You might not even be able to use it to build restaurant delivery in London. ‘Data’ does not exist as one, single, unified thing, where you can add every row and table of every different kind (Read more...)

TV, merchant media and the unbundling of advertising

About five years ago, a revenue line buried in the back of Amazon's accounts started to get quite big. ‘Other revenue’ was over $4bn by the end of 2017, and if you looked at the notes to the notes, you discovered that this was ‘predominately advertising’. By 2019 this had grown to $14bn, and I wrote about it here, pointing out that ‘Amazon’ was no longer just e-commerce and AWS, and had become a bundle of lots of different businesses, many of which were probably just as profitable as AWS. However, we still didn’t know how what ‘predominantly’ meant. At the end of 2021 this changed: Amazon started splitting out the ad revenue directly, telling us that this is now a $31 billion business.

$31bn is roughly the same size as Google Display, YouTube, or the entire global newspaper industry’s ad business.

This is only about 6.5% of Amazon’s net revenue, but it has much higher margins. Google’s ad business has close to 60% operating margins excluding TAC; Amazon’s ads should be higher margin, given that it’s mostly leveraging the core businesses’s existing cost base (in other words - this is ‘found money’), but even assuming the same 60%, that would be $18bn of operating income in 2021, almost exactly the same as the $18.5bn that Amazon reports for AWS. Given AWS’s capex requirements, this makes it extremely likely that the ad business produces more cashflow.

The margin differential between e-commerce and advertising has become a much bigger story (Read more...)

Tech questions for 2022

Sometimes the centre of gravity in tech is very clear - everything is about PCs, or the web, or smartphones. But at other times, there are lots of things going on and none of them are The Thing, and all of them are full of questions. Of course, for some crypto people crypto is the only question and the only answer, but as we enter 2022 there are lots of areas where trillion dollar questions are wide open. These are the questions I wonder about at the moment - there are others.


Crypto is so big and potentially important, and yet so vague and so early, that we can’t even agree what to call it, and at times the noise of both irrational, religious hype and straw-man attacks can seem overwhelming. There is a set of ideas that could in principle be as central to tech as machine learning or open source, but after that, everything is a question. 

The tech itself is in a period of massively increasing sophistication and complexity, as everyone builds on an open canvas and builds capability on a simple idea - early PCs or indeed the early consumer internet looked like this. But the more layers, abstractions, building blocks and primitives are created, the harder it is to know which will resolve into things normal people can use, and, paradoxically, the more likely gatekeepers become. We’re imagining the metaverse while arguing about how TCP-IP should work and whether this new ‘WWW’ thing is (Read more...)

Notes on newsletters

Email newsletters are older than the web, and paid newsletters are older than the internet. Fred Hickey has been writing the High Tech Strategist since 1987, when he sent it by fax, and ‘newsletters’ themselves are almost as old as print. 

Meanwhile, there’s been a steady flow of people scaling personal email newsletters and blogs into media companies - Dany Levy sold Daily Candy for $125m back in 2008, Rafat Ali built and sold Paidcontent and Imran Amed has built Business of Fashion to ~100 people. Morning Brew sold for $100m last December.

But it is somewhat new for individual writers to be able to get to tens or hundreds of thousands of dollars of revenue from selling the writing itself, without scaling up into a company, without building ecommerce, events or speaking, and, crucially, charging $5 or $10 a month for hundreds or thousands of subscribers instead of thousands of dollars a month for hundreds of subscribers. (There are plenty of individual analysts, like Fred Hickey, selling professional information and analysis for that or more.)

In the past there were always two constraints around the one-writer business. First, meaningful ad revenue on the web needs more traffic and therefore generally more writing than any single (normal) person can produce. You can make ads work on one-person traffic only if you have a very specific high-value niche, and at that point ecommerce or events also become relevant (A Collected Man's watch business is a great example of this), (Read more...)

When big tech buys small tech

A big part of the discussion around competition in tech today is how to think about acquisitions. It’s easy to say that we wouldn’t let Amazon buy Zappos or Google buy DoubleClick, but everyone’s favourite puzzle is Instagram. Facebook bought a pre-revenue startup with 13 staff, and it’s now commonplace to say that this was anti-competitive, and a failure of regulation, but at the time a lot of people thought that buying this thing for a billion dollars of money was insane.

The Instagram acquisition was at least reviewed by regulators, but a frequent talking point now is that in recent years there have been hundreds and hundred of other acquisitions by giant tech companies that didn’t get any scrutiny at all, far less get blocked, and that this represents a systemic regulatory failure. Responding to this, earlier this year the US FTC ordered Google, Apple, Facebook, Amazon and Microsoft to provide data on every single acquisition they made from 2010 to 2019, and published some aggregate data as a report in September. You can read it here.

The headline number is that there were 616 qualifying acquisitions of more than $1m in those 10 years, an average of 12 per company per year. Indeed ‘hundreds of acquisitions’ - but what were they, and what does that tell us?

A first observation: the vast majority of these companies were very small: 40% were bought for less than $10m and 80% for less than $50m, and most had less (Read more...)


About 20 years ago, Deutsche Telekom bought a UK mobile network called One2One and rebranded it T-Mobile. One2One had been known for low prices and a weak network, so what was this new 'T-Mobile' thing? Well, it had low prices... and a weak network. They changed the name but didn't fix the product. 

If your brand has become toxic, and you create a new brand to leave that behind, pretty soon the same old problems will leach into your shiny new identity as well. A marketing person would probably suggest you do this the other way around - you should fix the problems first, and then decide how to communicate that. So why would Facebook move to ‘Meta’ today?

One answer might be that Facebook will not be fixed, whatever that means, any time soon. Two billion people use it every day, posting over 100bn messages - SMS at its peak handled only a quarter of that volume. When you connect two billion people, that includes all the bad people, and more importantly all of our own worst instincts, expressed and channeled in new ways. All social media companies are struggling with that realisation; Facebook now has forty thousand people working on this, which is why all of that research was there to be leaked, but it still isn’t ahead. Complexity, trade-offs, technology limitations, politics, misaligned incentives and structural dysfunction all collide. 

But meanwhile, though Facebook wrestles with toxicity (or even if you think it doesn’t care), it worries that teenagers (Read more...)

Stepping out of the firehose


I’ve been collecting pictures like this for a while now, partly because they’re hilarious, but mostly because I think they say something interesting about how we find room for digital in our lives. The internet is a firehose. I don’t, myself, have 351 thousand unread emails, but when anyone can publish and connecting and sharing is free and frictionless, then there is always far more than we can possibly read. So how do we engage with that?

The first generation of internet services tried to help with filters and settings, but most normal people ignore the settings and don’t want to write filters, and so we very quickly went to systems that tried to help automatically. Gmail has its priority inbox, and social networks build recommendation engines and algorithmic feeds. Given that the average Facebook user is apparently eligible to see over a thousand times a day, it seems (or seemed) to make sense to try to show the video of your niece before the special offer from a restaurant you ate at five years ago. So your feed becomes a sample - an informed guess of the posts you might like most. This has always been a paradox of Facebook product - half the engineers work on adding stuff to your feed and the other half on taking stuff out.

Snap proposed a different model - that if everything disappears after 24 hours then there’s less pressure to be great but also less pressure to read everything. You can let (Read more...)

Metaverse! Metaverse? Metaverse!!

Over and over again, the tech industry asks ‘what’s the next cycle?’ Smartphones were the locomotive that drove the industry and all the innovation for 15 years, but now 4.5-5bn people have a smartphone and the market is mature, so what’s the next fundamental trend? Crypto people don’t ask - they know it’s crypto! - but everyone else in tech thinks that crypto is almost certainly a thing but not necessarily the thing, and wonders what else might come together. 

In parallel, there’s always a hunt for a new movement or a new word - some way to describe a set of apparently unrelated trends and conceptualise and bundle them into a single narrative. ‘Web 2.0’ did this very well in the mid-2000s, giving us a way to think about all the different things that were emerging from the wreckage of the Dotcom bubble, and when terms like this work best, they can as much create as describe the trend. Crypto people are now trying ‘Web3’ as a conscious reference to Web 2.0, and as a way to describe and perhaps create the direction of travel for actual real products on top of the raw tech. There are plenty of other terms floating round at the moment as well - ‘creator economy’ has bubbled up this year. 

But the one term that’s exploded beyond others, and broken out of tech twitter into pitch decks at IT outsourcing companies with amazing speed, is ‘Metaverse’, which I hear so often (Read more...)