2020 Ben Evans at Davos

Tech in 2020: Standing on the shoulders of giants Benedict Evans January 2020 www.ben-evans.com Benedict Evans –– January 2020 1

We connected (almost) everyone There are 5.5bn adults on earth, 5bn have a phone and 4bn have a smartphone Global population, 2019 (bn) 6 5 4 3 2 1 0 Global population over 14 Mobile phones Smartphones Fully online Source: World Bank, GSMA, Apple, Google, CNNIC, ITU, @BenedictEvans Benedict Evans –– January 2020 2

New technologies come in S Curves New tech generally goes from stupid to exciting to boring Stupid Exciting! Boring Benedict Evans –– January 2020 3

And smartphones reached ‘boring’ (mostly) As the product matures, the easy and obvious things have been done and marginal improvement tends to slow Stupid Exciting! Boring Smart Phones Benedict Evans –– January 2020 4

At this stage, we ask how we can use it… What becomes possible now that smartphones are mature and widely deployed? Stupid Exciting! Boring Smart Phones Benedict Evans –– January 2020 5

And we ask what the next S Curve will be What is the next generational change? Stupid Exciting! Boring Smart Phones ? Benedict Evans –– January 2020 6

Because that’s been the model for 50 years The tech industry has had a new centre roughly every 15 years Mainframes PCs Web Smartphones IBM Microsoft / Intel Google / FB / Amazon Apple / Google Big companies All companies Middle-class families Everyone Benedict Evans –– January 2020 7

So, two conversations today What now and what next? What happens What are the next Regulation and when everyone is S Curves? policy online? Benedict Evans –– January 2020 8

So, twothree conversations today Connecting the world has had consequences far outside tech What happens What are the next Regulation and when everyone is S Curves? policy online? Benedict Evans –– January 2020 9

What happens when everyone is online? Benedict Evans –– January 2020 10

Standing on the shoulders of giants New possibilities at new scale Density & Consumer Platforms penetration expectation Benedict Evans –– January 2020 11

“Every failed idea from the dotcom bubble would work now” - Marc Andreessen Benedict Evans –– January 2020 12

Front of mind: ecommerce Benedict Evans –– January 2020 13

Front of mind: ecommerce is big… US ecommerce is now over $500bn US ecommerce sales ($bn, 2019 dollars) 600 500 400 300 200 100 0 2000 2005 2010 2015 Source: US Census Benedict Evans –– January 2020 14

But still ‘only’ 15% of addressable retail $500bn is a big number, but US addressable retail is $3.6tr US retail sales ($tr, 2019 dollars) Addressable retail* 4 Ecommerce 3 2 1 0 2000 2005 2010 2015 Source: US Census Benedict Evans –– January 2020 15 *Addressable retail = ex. cars, car parts, gasoline, restaurants & bars

Globally, the USA is in the middle of the pack China leapfrogged physical retail, while the UK and SK are also far ahead of the USA Ecommerce share of retail (2019) 30% 25% 20% 15% 10% 5% 0% China UK SK USA France Japan Germany Russia Brazil India Source: McKinsey, BLS Benedict Evans –– January 2020 16

Expanding what ecommerce means Ecommerce has evolved past commodity products in brown cardboard boxes Books, commodities Anything One model Many models Capital Platforms Benedict Evans –– January 2020 17

Powering the ‘D2C’ explosion… Several hundred (at least) new online-only or online-first brands Source: IAB Benedict Evans –– January 2020 18

And huge new ecommerce platforms Independent ecommerce is now so big that the enabling platforms are worth tens of billions Shopify market Stripe valued at Instagram, cap is $46bn $35bn YouTube… Source: Bloomberg, Companies Benedict Evans –– January 2020 19

Shopify has come from nowhere to $60bn of GMV $60bn of sales on the platform, with over a million merchants, from the long tail to Unilever and Pepsico Shopify GMV ($bn) 75 50 25 0 2014 2015 2016 2017 2018 2019e Source: Shopify, @BenedictEvans Benedict Evans –– January 2020 20

Meanwhile: Amazon! Amazon’s revenue continues to grow at 30% a year Amazon annual revenue ($bn) 250 200 150 100 50 0 1995 2000 2005 2010 2015 Source: Amazon Benedict Evans –– January 2020 21

Though only half is direct ecommerce But it has become about more than just plain ecommerce Amazon annual revenue ($bn) Revenue 250 First party ecommerce 200 150 100 50 0 1995 2000 2005 2010 2015 Source: Amazon Benedict Evans –– January 2020 22

Platforms for others are now a third of Amazon revenue Amazon is building growth by leveraging its platforms for other companies Amazon revenue, 2018 ($bn) 125 100 75 50 AWS Ads & other 25 Marketplace Stores (WFM etc) Subscriptions 0 First party ecommerce Platform Other Source: Amazon Benedict Evans –– January 2020 23

Amazon is a platform for others 60% of sales on Amazon are through the third party marketplace Amazon GMV ($bn) Marketplace 350 First party ecommerce 300 250 200 150 100 50 0 2014 2015 2016 2017 2018 Source: Amazon, @BenedictEvans Benedict Evans –– January 2020 24

Amazon is now taxing product search Amazon has built a $10bn ‘search ad’ business –retailers just call this marketing Amazon ‘Advertising & other’ revenue ($bn) 12.5 10.0 7.5 5.0 2.5 0.0 2014 2015 2016 2017 2018 Source: Amazon Benedict Evans –– January 2020 25

New retailing means new taxes If you’re not paying rent for a store (or in one), how do people hear about you? Amazon sells Booking & Kylie Jenner's But Macy's placement for Expedia pay make-up and Walmart $10bn Google $10bn business: did all this too $1bn Source: Companies Benedict Evans –– January 2020 26

Newretailing means newtaxes If you’re not paying rent for a store (or in one), how do people hear about you? Amazon sells Booking & But Macy’s & But Macy's placement for Expedia pay Walmart did and Walmart $10bn Google $10bn this too did all this too Source: Companies Benedict Evans –– January 2020 27

Unless you have a new route to awareness If you’re not paying rent for a store (or in one), how do people hear about you? Amazon sells Booking & But Macy’s & Kylie Jenner’s placement for Expedia pay Walmart did make-up $10bn Google $10bn this too business: $1.2bn Source: Companies Benedict Evans –– January 2020 28

Get it wrong? Go to the mattresses A vacuum-packed mattress was a brilliant idea until everyone else did it 2019: there are 175 online mattress companies Source: GoodBed.com Benedict Evans –– January 2020 29

Is that a ‘tech’ company? Or is it a mattress company with a website? Benedict Evans –– January 2020 30

Welcome to retail The internet is not the first time that retail has a new format US retail sales, $bn (2019 dollars) Department stores (ex 600 discount) Ecommerce Warehouse clubs & 500 superstores 400 300 200 100 0 1995 2000 2005 2010 2015 Source: US Census Benedict Evans –– January 2020 31

“Over half of our store sales involve an online journey, and over a third of our online sales involve a store experience” - Erik Nordstrom Benedict Evans –– January 2020 32

Retail isn’t as binary as ‘online’ and ‘offline’ Online, yes, but also rent, distance to customer, service, selection, staff costs, urgency, margin, inventory, etc, etc US retail sales by retailer category, 2018 100% 75% Non-addressable 50% Addressable 25% 0% Ecommerce 'Online versus offline' 'Retail' Source: US Census, @BenedictEvans Benedict Evans –– January 2020 33 *Addressable retail = ex. cars, car parts, gasoline, restaurants & bars.

Is that a ‘tech’ company? Or is it a retailer using a new channel? Benedict Evans –– January 2020 34

Front of mind: TV Benedict Evans –– January 2020 35

Front of mind: unbundling TV YouTube launched in 2004 –a decade later, US TV finally unlocked Annual change in US pay TV subscriptions 2% 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 -2% -4% -6% -8% Source: JP Morgan Benedict Evans –– January 2020 36

US pay TV subs down 20% and falling For generations, most of the US was sold a big and expensive pay TV bundle - this is now breaking apart US pay TV subscriptions (m) Incumbents 125 Netflix 100 75 50 25 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: JP Morgan, Netflix Benedict Evans –– January 2020 37

And TV is changing a lot faster than retail US cord-cutting percentage has passed ecommerce percentage in just 5 years. Digital change in US retail and TV Cord cutting as % peak 20% US pay TV subs Ecommerce as % US addressable retail 15% 10% 5% 0% 2000 2005 2010 2015 Source: US Census, JP Morgan, @BenedictEvans Benedict Evans –– January 2020 38

Teen share down by half Pay TV share of US teen viewing hours is down by half in three years US teen daily video consumption share Pay TV 50% Netflix Youtube 40% 30% 20% 10% 0% Mar 2016 Sep 2016 Mar 2017 Sep 2017 Mar 2018 Sep 2018 Mar 2019 Sep 2019 Source: Piper Jaffray Benedict Evans –– January 2020 39

Begun, the content wars have A third of US 2019 content spending came from streaming companies US annual content budgets, 2019 ($bn) Sport 20 Entertainment 15 10 5 0 Disney Comcast/NBCU Netflix ViacomCBS Warner Amazon Fox Sony Discovery Apple Source: UBS Benedict Evans –– January 2020 40

Streaming is a third of US TV production A third of original series in the USA are now from Netflix, Amazon and other new entrants US scripted original series Online 500 Broadcast Pay cable Basic cable 400 300 200 100 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: FX Networks Research Benedict Evans –– January 2020 41

Now what? Old model is gone, but not yet clear what the new equilibrium will look like Subs down Teen viewing Show count Ad budgets 20% share down has doubled, flat to up? 50% and costs… Source: JP Morgan, Nielsen, FX Networks, Zenith Benedict Evans –– January 2020 42

New forms of video emerging Twitch (90% of live games viewing) hit 1bn monthly hours in Q3 2019 Monthly Twitch viewing hours (m) 1,250 Amazon acquisition for $970m 1,000 750 500 250 0 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 Sep 19 Source: Twitchmetrics Benedict Evans –– January 2020 43

Twitch is already/only the size of a UK TV channel Glass half empty, or half full? Monthly viewing hours (bn) 7 6 5 4 3 2 1 0 Total UK TV Netflix USA BBC 1 (UK) Global Twitch ITV 1 (UK) Source: Ofcom/ONS, Netflix, Twitchmetrics, @BenedictEvans Benedict Evans –– January 2020 44

Meanwhile, global effects from the US streaming war US budgets were always bigger, but they sold the shows abroad: Netflix goes direct 2019 content budget, $bn 25 20 Amazon 15 Spain Italy 10 France Netflix Germany 5 UK 0 Streaming Top 5 European markets Source: Netflix, UBS, Ofcom/IHS Markit Benedict Evans –– January 2020 45

Netflix is the UK’s biggest TV channel Netflix is the UK’s biggest TV channel for 18-34s,, and YouTube is even bigger Video minutes per person per day, UK 18-34s, 2018 70 60 50 40 30 20 10 0 Youtube Netflix ITV BBC Channel 4 Amazon Prime Channel 5 Source: Ofcom Benedict Evans –– January 2020 46

Unbundling countries, not just cable More than half of Netflix’s base and most of the user growth is now outside the USA Netflix subscribers (m) APAC 175 LATAM EMEA 150 North America 125 100 75 50 25 0 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Source: Netflix Benedict Evans –– January 2020 47

“In business, there are two ways to make money. You canbundle, or you can unbundle.” - Jim Barksdale Benedict Evans –– January 2020 48

Now: the great unbundling. Next: the great rebundling For TV and retail, the old bundles are going, but we will get new ones But! New distribution channels break There can only be so many brand apart old aggregation models relationships Aggregators exist for a reason Everyone wants to unbundle and Many big brands are actually B2B go direct businesses anyway Lots of rebundling coming Benedict Evans –– January 2020 49

Is that a ‘tech’ company? Or is it a TV company using a new channel? Benedict Evans –– January 2020 50

OK, ecommerce and TV. But what else? Benedict Evans –– January 2020 51

“Remember, most people don’t have that” For 25 years, we’ve had to remind ourselves that most people are not early adopters Most people Most people Most people 83% of US don’t have don’t have don’t have teenagers broadband 3G smartphones have an iPhone Source: Piper Jaffray for US teenagers in 2019 Benedict Evans –– January 2020 52

Today, anyone does anything online In 2017, 40% of Americans met their partners online US heterosexual couples who met online, by year of meeting 40% 30% 20% 10% 0% 1995 2000 2005 2010 2015 Source: Stanford/GfK, 1995-2017 Benedict Evans –– January 2020 53

Benedict Evans –– January 2020 54

Models for market expansion Penetration and consumer acceptance drives expansion Vertical integration Horizontal expansion The full stack’ model: from Taking established online booking.comto Airbnb models to new segments Benedict Evans –– January 2020 55

Example: expanding the ‘two-sided marketplace’ model A model that only worked for narrow segments a decade ago now expands into the whole economy Rigup Honor Incredible Oil field workers Home help for the Health elderly Nursing Benedict Evans –– January 2020 56

Is that a ‘tech’ company? Or is it a travel / insurance / employment / taxi / dating /banking / restaurant company using a new channel? Benedict Evans –– January 2020 57

Growth and global diffusion More and more investment in company creation around the world Venture capital investments ($bn) RoW 300 US 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: NVCA Benedict Evans –– January 2020 58

Expanding software and tools from work to everyday life Software, automation, workflow, and tools… From work and big business to everyone’s lives From mainframes, to LinkedIn, to Tinder and Rigup BeBenneeddiicctt EEvvaannss –––– Ja12n Ouactroy b2e0r2 20019 5959

The next S Curves Benedict Evans –– January 2020 60

What’s the next generational change in scale? The tech industry has had a new centre roughly every 15 years Mainframes PCs Web Smartphones ? Benedict Evans –– January 2020 61

Can there be another massive increase in scale? Once you’ve connected everyone, how do you create a bigger market? Global installed base, 2019 (bn) 6 ? 5 4 3 2 1 0 Mainframes PCs in 1994 Web in 2007 Smartphones in 2019 Global population over 14 Source: UN, GSMA, ITU, Apple, Google, CNNIC, @BenedictEvans Benedict Evans –– January 2020 62

And is this the new thing, or part of the old thing? Smartphones began as a PC accessory, but now PCs are a smartphone accessory Stupid Exciting! Boring PC internet ? Mobile? ? ? Benedict Evans –– January 2020 63

Lots of new things going on, but which is THE thing? Many new things happening, but what’s their scope? Frontier tech Important but Structural layers narrow Machine learning The next Quantum, new Drones, IoT, voice, platform? battery chemistry, wearables, robotics, Crypto? neural interfaces, esports, 3D printing, (3G/4G/5G) AR glasses? autonomy, AR optics VR, micro-satellites (Cloud, still) Benedict Evans –– January 2020 64

Tech for the 2020s A lot of innovation is happening inside tech, but that’s no longer the only focus Machine Crypto is the AR is the next learning is the new open smartphone Regulation new database source (?) (?) Benedict Evans –– January 2020 65

The Next Big Thing? Regulation and policy Benedict Evans –– January 2020 66

Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather. - John Perry Barlow, 1996 Benedict Evans –– January 2020 67

Then we connected everyone, including the bad people There are 5.5bn adults on earth, 5bn have a phone and 4bn have a smartphone Global population, 2019 (bn) 6 5 4 3 2 1 0 Global population over 14 Mobile phones Smartphones Fully online Source: UN, GSMA, ITU, Apple, Google, CNNIC, @BenedictEvans Benedict Evans –– January 2020 68

Which also meant creating huge, scary companies 7 of the 10 largest global companies by market cap are tech Ten largest global companies by market cap, December 2019 ($bn) 1,250 1,000 750 500 250 0 Apple Microsoft Google Amazon Facebook Berkshire Alibaba Tencent Johnson & Exxon Mobile Hathaway Johnson Source: Bloomberg Benedict Evans –– January 2020 69

Now we have issues. So many issues Every month there’s something else to worry about Encryption Hate speech Filter bubbles Political advertising Abuse of Elections CSAM Radicalisation market Privacy Ride power share Face AI Fake News recognition Bias Benedict Evans –– January 2020 70

And this won’t get simpler None of these people exist: these faces are algorithmically generated by a machine learning system Source: ThisPersonDoesNotExist.com Benedict Evans –– January 2020 71

Naturally, there must be a simple answer Every complex question has a simple answer Break them up BREXIT Benedict Evans –– January 2020 72

‘Break them up’ –the Brexit of tech Every complex question has a simple answer Into what? Break them up And which Brexit problems would that solve? Benedict Evans –– January 2020 73

Also included: a classic moral panic Coverage of real issues is accompanied by a steady flow of stories that don’t stand up to scrutiny ‘Google makes $4.7bn Extrapolated from a from Google News!’ 2008 guess of ‘$100m?’ ‘The NHS gave Amazon Alexa can read bits of the our health data!’ public website to you ‘Amazon has private label!’ Like all retailers for a century Benedict Evans –– January 2020 74

Moral panic: Amazon does private label 'Well done – you just discovered retail’ Private Label as % revenue, 2018 40% 30% 20% 10% 0% Amazon Walmart US groceries Macy's US general retail UK packaged food Source: Morgan Stanley, Euromonitor Benedict Evans –– January 2020 75

But panics have causes, and consequences “Industrial food is a good thing, but what’s in the sausages?” - The Jungle, 1906 Maybe we should break up ‘the beef trust’… But we also need an FDA, ingredient lists, veterinary inspections, hygiene rules… BeBenneeddiicctt EEvvaannss –––– Ja12n Ouactroy b2e0r2 20019 7676

So, which problem are you trying to fix? Different types of problem have fundamentally different solutions Tech companies Tech companies Bad people being bad to being bad to us using tech other companies Search, app stores, Privacy, security Abuse, fake news, ad pricing (but not pricing) elections… Benedict Evans –– January 2020 77

Anti-trust: Mostly beside the point Benedict Evans –– January 2020 78

Google and Facebook clearly have market dominance Google and Facebook clearly have dominance in major markets: the question is what (if anything) to do Market share, global ex-China, 2019 100% 75% Facebook 50% Google Facebook Facebook 25% Google Google 0% Search Social (DAUs) Online advertising All advertising Source: Companies, Zenith, @BenedictEvans Benedict Evans –– January 2020 79

What’s Amazon’s market share: 35% or 5%? Amazon has a third of ecommerce, but is that really the competition? Amazon US market shares, 2018 40% 30% 20% 10% 0% First party share of ecommerce GMV share of ecommerce GMV + Stores share of total GMV + Stores share of Walmart share of addressable retail addressable retail retail Source: @BenedictEvans, Amazon, Walmart, US Census Benedict Evans –– January 2020 80 Addressable retail = ex. cars, car parts, gasoline, bars & restaurants

What’s Apple share? Depends which regulator you ask Apple is the minority player globally, but has 100% of the market for ‘iOS app stores’ Apple market shares, 2019 100% 75% 50% 25% 0% Global unit sales Global installed base US installed base US app store sales US teenager installed iOS app stores base Source: Apple, Gartner, Operators, @BenedictEvans, Piper Jaffray Benedict Evans –– January 2020 81

But they don’t have Regulators define market dominance! the relevant market however they like! Market definition is everything Regulators make their own decision on what the ‘relevant market’ is for anti-trust purposes IBM had 100% of the IBM mainframe market Apple has 100% of the iPhone app store market BeBenneeddiicctt EEvvaannss –––– Ja12n Ouactroy b2e0r2 20019 8282

What could feasibly be split apart? Coherent case that YouTube, Instagram & WhatsApp, and AWS are viable stand-alone businesses Google Facebook Amazon YouTube Instagram & Apple AWS (cash cow, Content stores? Android? Gmail? WhatsApp but not the only Music? Display ads? Oculus? one) Benedict Evans –– January 2020 83

But what kinds of competition would breakups affect? Breakups would affect ad competition, but not product competition – unlikely to create a flood of YouTube alternatives Split apart Little impact on More competition Instagram or network effects in the ad market YouTube or product competition Benedict Evans –– January 2020 84

And… Do people worry about ‘big tech’ because Google & Facebook might be overcharging WPP, and Apple is mean to Spotify? Or are the real concerns elsewhere? Benedict Evans –– January 2020 85

Which problem are you trying to fix? Few of the issues that make people worry about ‘big tech’ relate to anti-trust Tech companies Tech companies Bad people being bad to being bad to us using tech other companies Solved by anti-trust: Limited anti-trust No anti-trust relevance either breakups or relevance conduct regulation Benedict Evans –– January 2020 86

Regulation: Boring, complex, somewhat effective Benedict Evans –– January 2020 87

‘Tech’ becomes a regulated industry Lots of industries are subject to specific, technical regulation, and tech will become one of them US Federal industry-specific regulation index, 2014 30 25 20 15 10 5 0 Cargo shipping Pharma Oil and Gas Fishing Airlines Banks Finance Cars Electrical Refining Extraction utiltiies Source: Al-Ubaydli and McLaughlin Benedict Evans –– January 2020 88

We don’t actually regulate ‘banks’ We won’t regulate ‘tech’ – we’ll have lots of different regulation for different issues and companies Retail Public Insider deposits securities trading markets ‘Regulate the Credit cards Pensions Capital banks’ adequacy Mortgages Futures & And so much options more… Benedict Evans –– January 2020 89

Is this a ‘tech’ problem? Is this a new problem, or an old problem expressed in a new way? Old issues, Old issues, New issues, old solutions new questions new solutions Online-only Uber Airbnb, Facebook banks Benedict Evans –– January 2020 90

Is that a ‘tech’ company? Or is it a bank, but with a website? Benedict Evans –– January 2020 91

Where is the liability? In a massively disaggregated industry, there are many parties that might touch a problem at some point Landlord IRS Market counterparties Auditor Bernie Madoff Microsoft Excel SEC Phone company Suspicious peers Benedict Evans –– January 2020 92

Presume complexity, across domain and country The reality of regulation is complex and multimodal Source: Moody's Analytics Global Banking Regulatory Radar Benedict Evans –– January 2020 93

Do we know what we want? Benedict Evans –– January 2020 94

Where to start? We have a wish list… Police Open access platforms Catch state Secure, private, Trustworthy ‘bad actors’ minimal data information collection Empower Moderate competitors ‘bad’ content Benedict Evans –– January 2020 95

All of these are trade-offs Do we want platforms to know and control what happens on their networks, or not? Or both? Police Open access platforms Catch state Secure, private, Trustworthy ‘bad actors’ minimal data information collection Empower Moderate competitors ‘bad’ content Benedict Evans –– January 2020 96

Case study: content moderation Easy to say, but do we know what we want? There’s bad stuff on your platform – take it down Benedict Evans –– January 2020 97

What does ‘take down’ mean? ‘Social networks’ are a mix of many publishing forms with different speech and distribution models Advertising Recommendation engines Public feeds Groups Private feeds Group messages 1:1 Source: Alex Stamos Benedict Evans –– January 2020 98

What does ‘bad’ mean? It’s not just ‘China’ - liberal democracies have widely varying attitudes to free speech Percentage believing that people should be free to: Offend minorities 80% Offend religion Be sexually explicit 70% 60% 50% 40% 30% 20% 10% 0% Brazil Canada France Germany India Italy Japan Spain UK USA Source: Pew Global Attitudes Survey, 2015 Benedict Evans –– January 2020 99

Do we know what we want? We lack consensus on what’s bad enough to ‘take down’, and on what ‘take down’ even means Innocuous Rude? ??? Offensive? Illegal Totally public ??? Totally private Benedict Evans –– January 2020 100

China, digital sovereignty and digital extra- territoriality Benedict Evans –– January 2020 102

“War is God's way of teaching Americans geography.” Benedict Evans –– January 2020 103

The end of the American internet China and India have 5x more smartphones than the USA Smartphone users, June 2019 (bn) 3 2 Other 1 India China Westen Europe 0 North American China & India RoW Source: Apple, Google, CNNIC, @BenedictEvans Benedict Evans –– January 2020 104

The end of the American internet China and India use more mobile data than the rest of the world combined Mobile data, June 2019 (EB) 20 15 India Other 10 5 China Westen Europe North American 0 China & India RoW Source: Ericsson Benedict Evans –– January 2020 105

The end of the American internet 40% of global ecommerce value is in China Ecommerce ($tr, 2019e) 2.5 2.0 1.5 India All other 1.0 China Western Europe 0.5 North America 0.0 China & India Other Source: McKinsey, eMarketer Benedict Evans –– January 2020 106

American companies, global reach “But the US constitution says!” is no longer an adequate answer Global user base, Q3 2019 RoW 100% USA 75% 50% 25% 0% Google Apple Facebook Netflix Source: Companies, @BenedictEvans Benedict Evans –– January 2020 107

Regulatory competition? At least three jurisdictions competing, with different politics but also different regulatory cultures California, USA EU China Singapore, UK, etc Benedict Evans –– January 2020 108

Digital extraterritoriality How do you apply domestic laws to a global medium, and to citizens who may be abroad? Austria Singapore GDPR & CCPA EU court holds that State’s right-of- Laws apply to an Austrian libel reply must be EU/CA citizens take-down order applied to posts wherever they are applies globally seen in Australia Benedict Evans –– January 2020 109

Global reach means a lowest common denominator Extra-territorial regulation means companies start complying with the harshest rule that applies, wherever it is Benedict Evans –– January 2020 110

Tiktok: not just your standards? When the community standards being enforced may not be your community’s standards BeBenneeddiicctt EEvvaannss –––– Ja12n Ouactroy b2e0r2 20019 111111

There will be many more TikToks The US can no longer assume that every hot new thing will be made in the US Venture capital investments ($bn) RoW 300 US 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: NVCA Benedict Evans –– January 2020 112

China and the NBA… Benedict Evans –– January 2020 113

And every other brand ‘Don’t forget Taiwan is part of China’ Benedict Evans –– January 2020 114

From sovereignty (or protectionism) to extraterritoriality Again, how do local rules apply to global systems? Old New Future Store your data in Follow our rules in Use our country’s our country our country rules outside our country Benedict Evans –– January 2020 115

The future –compliance and moderation as a service? GCP/AWS/Azure all now rolling this out –will Facebook join them? Benedict Evans –– January 2020 116

But what will happen when regulators conflict? When local regulators assert global coverage and make incompatible demands, who yields first? Police Open access platforms Catch state Secure, private, Trustworthy ‘bad actors’ minimal data information collection Empower Moderate competitors ‘bad’ content Benedict Evans –– January 2020 117

And this may get even more complicated Part of the point of crypto is to remove central control – and hence sovereignty Old New Next Mark Zuckerberg Will the CEO of A distributed won’t come to Tiktokcome to Blockchain system Parliament Congress? that has no CEO? Benedict Evans –– January 2020 118

The only certainty: regulation as a regressive tax Much of regulation is a fixed cost that affects new entrants disproportionately Mean compliance costs at US financial institutions by size 10.0% 7.5% 5.0% 2.5% 0.0% <$100m $100-250m $250-500m $500m-1bn $1bn-10bn Source: Dahl, Meyer and Neely 2016 Benedict Evans –– January 2020 119

Conclusion: welcome to the world Benedict Evans –– January 2020 120

Software ate the world, so all the world’s problems get expressed in software (We connected everyone, including the bad people) Benedict Evans –– January 2020 121

What’s the next cycle? Tech has become part of the world, so it gets regulated as part of the world Mainframes PCs Web Smartphones Systemically Big companies All companies Middle-classes Everyone important part of society Benedict Evans –– January 2020 122

Worrying about tech isn’t new The late 70s and early 80s saw another wave of concern around computing and automation Benedict Evans –– January 2020 123

Every wave of tech changes the world, and gets regulated Every important tech gets industry-specific regulation Industrial Ships, Railways food aircraft, cars, Internet databases… Benedict Evans –– January 2020 124

Tech has changed its attitude… The ideology of tech has changed, and AI has changed what’s possible, but some things remain impossible “Censorship is bad” Yes to moderation… But whose decision is it? “We can’t moderate 100bn AI changes this… messages a day” If we also hire 30k human moderators “You can’t build a secure You can’t build a secure platform with a back door” platform with a back door Benedict Evans –– January 2020 125

And this also needs new understanding in policy… Regulating tech is complex and full of tradeoffs. But, this is true of all regulation – law and policy are the art of the possible Some regulation Most is ‘best Some things are is binary reasonable effort’ just not possible Ban tobacco ads Try to prevent fraud Ban inflation Open banking APIs Try to block CSAM Block all bad content instantly Benedict Evans –– January 2020 126

The growth chart for the 2020s Welcome to a regulated industry Pages of rules related to Dodd-Frank banking regulation 25,000 20,000 15,000 10,000 5,000 0 Year 1 Year 2 Year 3 Year 4 Year 5 Source: Davis Polk & Wardell LLP Benedict Evans –– January 2020 127

Thank you Benedict Evans January 2020 www.ben-evans.com Benedict Evans –– January 2020 128