An hour with Benedict Evans
Tech reaches a new phase - Kinase discusses with Benedict Evans
In the second half of the year, businesses need to forecast which changes are accelerating and which are coming to an end. There are real opportunities for disruption, and big pitfalls for established players who misunderstand the market or the changes happening to their sector within the bigger picture.
Benedict Evans is an independent tech analyst who has spent 20 years analysing mobile, digital media and technology. In his words, “I try to work out what’s going on and what it means.” His annual presentations on macro and strategic trends are key events, and ‘The end of the beginning’ delivered in 2019 at Google HQ in San Francisco impressed Kinase’s directors, Richard and Chris when they attended. So when Google invited us to join Benedict for an ‘Insights Live’ hour, in which he would go through his views on ‘Paths to the new normal’, we were keen to listen and ask him some questions.
Where we are now
“Forced experimentation and years of changes in weeks,” is Evans’ summary of the present moment.
In April ecommerce in the UK went up from 20% to 30% of addressable retail, according to the ONS - and transaction data collected by the Bank of England since then suggests this has been sustained.
In the second half of the year, the ecommerce sector will need to navigate through a bigger series of economic changes while trying to keep growth accelerating. A series of macro shocks are going to play out and interact with each other: furlough schemes coming to an end; geopolitical change as the Chinese economy continues to grow and the trade war moves on; and the big question - in the long term, who will pay for new government debt sustained during lockdown?
Looking back to the recession of 2008, new companies like Uber, AirBnB, Slack, Pinterest, WhatsApp, and Groupon were formed - all of them spotted opportunities. This time around, a reset across different markets will open similar new gaps. Video messaging, moving to the cloud, working from home, and the centralisation of tech into every aspect of life are the areas for growth we have seen accelerating.
Bundling and unbundling
Evans uses the phrase ‘bundling and unbundling’ to express the two-way direction of current changes. What individual players need to do is understand which direction they are being carried in, or need to move in. Services or products are bundled together in one place - for example within an app - and are unbundled from their original suppliers. The more you can do in Instagram, Google or Baidu Maps directly, for example, the more transactions get bundled into these businesses and away from the restaurants, shops and other back end providers. The concept - originating with Jim Barksdale - is expanded upon in this HBR article.
Evans puts it pithily: “when you build an organisation from scratch, you get a new org chart.” Uber didn’t have to struggle to transform an old taxi company structure and way of working.
Tech becoming central to society
Evans points out that the current narrative around regulation for tech expresses a bigger change. The internet is becoming central to all aspects of society. When something becomes that important, it has to be regulated closely and the process of regulation can take a long time. For example, it took seventy years for seat belts to become compulsory in cars.
We wonder: How can tech companies and the marketing industry push for regulation that will enable growth?
Evans points out that regulation has to take a path between what is possible (“you can’t ask Ford to design a car which is 100% safe” or a car which can’t be used by criminals) and what society and lawmakers can agree needs to be enforced. Evans takes a granular approach - there’s no single direction that tech regulation will take. For him, it’s important to see that regulating Facebook, Google, Amazon and Apple, for example, are four different things. Hate speech on Facebook is a different problem to antitrust questions around Google’s ads, which is a different problem to how AirBnB may be negatively affecting the Italian property market.
“The problem,” says Evans, “is that we’re having to look at all of these questions very quickly.”
What’s happening to the ad spend mix
Evans charts the history of US ad spend by medium: the rise and fall of newspapers, and the rise of digital media as a percentage of total ad spend.
Source: McCann Zenith / Benedict Evans
What we wondered is why the total percentage of ad spend as a percentage of GDP trended downwards after 2008?
“It reflects the changing nature of advertising over the past ten years,” says Evans. “New money has come in which was previously invested in distribution, or something not designated as advertising. Meanwhile, other money has been recategorised and the total has reduced.”
Our further analysis of this is that digital advertising is more efficient at connecting consumers with products and services, and the savings go elsewhere: into profits or price competitiveness.
