Transcriber: Capa Girl Reviewer: Ariana Bleau Lugo
Good morning!
Have you ever been in the position of
watching Silicon Valley take off and wish
that you had known what was about to happen?
(Laughter)
So, I'm here to talk about what I think
is going to be the most intense disruption
of the technology world that's occurred in the last 15 years.
And I believe the end product of it
will be entirely a bad engagement.
In fact, I think it is possibly a transformational change
in the way we're going to think about engagement.
So what would you do if you knew, today,
that there was going to be a major technology cycle
beginning in the next couple of years,
and that you could participate in it?
What would you do?
(Audience) Jump in.
So, this is the situation in which I find myself:
I'm a professional investor about half the day,
the daylight half. I was paying close attention earlier
and I now know I need to have 10 hours sleep at night,
which is tricky, because last night the show ended
about 12:30, and so I was, I got --
and that was in Santa Rosa, so I got home a little late.
I want you to understand that I've been studying the
technology world and things have already begun to change.
But they're changing in ways that I see,
literally no commentator referring to today.
There're six things going on that I'm going to focus on.
And I want you to understand, each one of these
is a hypothesis, it is subject to revision.
It may even be subject to elimination.
But I want you to understand I've been working
with this group of hypotheses now for about 10 months,
and what's really interesting is that I've been
exposing them to a lot of people in the industry and
people have been finding it very hard to debunk them.
So I'm going to share them with you today, because
I think collectively we have a chance to figure this out.
The first thing, and I think this is fairly obvious,
is Windows is dying, and --
(Applause)
I mean no disrespect to Microsoft because I think,
in fact, Microsoft as a company,
has many things it can do to maintain growth,
but desktops would not be one of them.
And the key indicator here, the only one you need to know,
to understand what's going on here
is that smartphones have basically taken Windows
from 96% of Internet connected devices
3 or 4 years ago to under 50% now.
And it is falling precipitously, that'll be under 30%
probably a year and a half from now.
Microsoft has lots of things it can do.
It can retreat to exchange and crank the price there.
But the reason this is so significant is that Windows
and enterprise software, which is related to it,
think SAP and people like that, those businesses
account for hundreds of billions of dollars in revenue.
And I'm suggesting we're going to have a jump off of their revenue.
And in a world where the U.S. economy is not growing that rapidly,
having somebody go away is the simplest way
to create room for new industries.
And this is where the revenues are going to come from.
But guess what!
Like a Ginsu knife commercial, there's more!
It turns out Microsoft is not the only company
whose body is lying across the railroad tracks today.
Another one is Google.
Now you may not have focused on this,
but index search accounted for 90%
of all search volume about 4 years ago.
But an interesting thing happened: Google got to be
so successful that the index became fool of garbage.
In fact, the entire Web has become full of garbage.
If you think about it, the Web has become
almost a digital Detroit. (Laughter)
If you look hard enough,
you can find really compelling things there.
But if you aren't really careful, you can get mugged.
(Laughter)
And it is no shock that each one of us
and everyone else out there have looked
for other ways to find the things we want to find.
We started with Wikipedia, but then Facebook
came along for matters of taste and money;
Twitter came along for real time news;
LinkedIn for professional things;
Match.com for less professional things;
TripAdvisor for travel, Yelp for restaurants,
Realtor.com for finding a home,
Dictionary.com for words,
Wordnik for the whole language.
So the thing has really changed.
And here's what's interesting.
Like Microsoft, Google has plenty of ways
to respond in terms of growing its business.
But what it cannot do is recover its position
as the dominant player on the Internet.
It is my belief that when Google came along in 1998,
the Internet was an open-source,
long-tail world with no leader.
And Google stepped into this void, provided leadership
and implemented a strategy that systematically
commoditized all forms of content.
And the simplest way to look at
is look at the Google results page:
the only logo on that page is Google's,
everything else is in the same font.
That form of commoditization has been tremendous
for Google and horrible for almost everyone else.
And I believe to a first order, it is over.
Not because index search is going away, but because
like word processing, it's gone from the most important
application we all had, to just another thing we do.
And you see this in mobile in particular.
Because in mobile, people have found
other ways to find what they want.
Index search is too disruptive on a cell phone,
so the rate of index search is a small fraction
on cell phones to what it is on desktops.
And that is the leading indicator that Google's recovery,
if you will, will be in something other than search.
The third hypothesis I have is no longer controversial,
but it's important to understand what happened.
If the left hand side of this equation is the open-source
World Wide Web, with its belief in the long tail,
its belief in an absence of regulation,
of an absence of security and control,
it's really off frontier.
Apple came along with a different vision.
They said, "We think the Web is dead.
We're going to go on the Internet,
because that's the big data store,
and we're going to provide you with branded,
thoughtful, value-added, copyright-protected content."
And people have overwhelmingly chosen that
over Google's vision.
Over the last three years, Apple's gone from being
an all sovereign in computers to this year they will ship
approximately 100 million Internet-enabled devices.
100 Million. They'll probably be just short of that.
The point here is, it's Apple's world.
We're lucky to be part of it because
Steve is quite intolerant about who he lets in.
(Laughter) But think about this:
Imagine George in the Civil War, OK?
Apple is Sherman, World Wide Web is Joe Johnston.
And the point is they've lost.
And the Web is looking at this and going,
"My God, we've got to come back", and the cost,
in order to do this, is they have to sacrifice Google.
So Google has pushed the pendulum of technology
to the absolute limit of commoditization.
To the point where people who spent their whole lives
developing really valuable, compelling entertainment,
and really valuable, compelling journalism,
and really valuable, compelling novels,
can't make money doing it any more.
So the website, OK, if Google's over here, and Apple's here,
HTML 5, the next generation is going to be
on the other side of Apple.
So the new battle, instead of being commoditization
versus the AppStore, is going to be between
the AppStore and highly differentiated content.
If you don't know what HTML 5 is,
let me help you understand.
It is a programming language.
But it's a profound one. Because for the first time,
you're going to be able to construct a web page
where the entire thing can have embedded interactivity,
can have video, audio, whatever it is that you want.
But no more flash boxes.
And it's a huge, huge change.
Because it essentially opens up a new canvas.
And it doesn't just open it up for The New York Times,
it opens it up for everybody on WordPress,
it opens it up for every band, because suddenly,
the ability to produce a differentiated, highly compelling,
value-added, maybe even monetizable product, will be there.
And what's really interesting is, thanks to Apple,
there's nothing that commoditizers can do about you.
Apple may try to stop us, but I don't think they will.
I think they're smarter than that.
So the key point is, I don't know where we're going
to stop, as the pendulum swings back.
But I think the days of hyper-commoditization are behind us.
And we can all plan this, and in a moment
I'm going to tell you how I'm doing it personally.
Tablets!
This is the other side of why Windows is dead.
If any of you does not own an iPad --
Look, I don't own in the Apple stock
so I have nothing, no acts in this but --
seriously, if you don't own an iPad you can't possibly
understand the most important things going on now.
And, no, I'm really serious about this.
And I think the most important point is that
the other players on this thing,
at the moment, have made no impact.
And keep in mind it was our investment that built
Palm's WebOS that HP's shipping
soon, eventually, some day. (Laughter)
I think it's highly probable Apple wins this thing
with market share closer to what they have on the iPod
than to what they have on the iPhone.
That would be 70 or 80%.
If that's right, Apple's going to be
50 to 100 billion dollars bigger
in a few year that they are today.
And I literally don't see anybody else even challenging them.
It's really important to understand that
Apple's cost structure is so favorable,
relative to everybody else,
that it's almost impossible to imagine any of
the cell phone guys, particularly Android guys, catching up.
Because Apple's gross margins exceed
the retail price of almost every Android phone.
Here is the one that I want to leave you with
as an investment idea, first and foremost.
The mania on Wall Street is about social.
Social is a side show. And I say this as somebody
whose fund has most of its money in Facebook.
It is a one-off. This is not --
To paraphrase from Star Wars,
"This is not the mania you're looking for."
The one we're talking about will be so much bigger than this.
Facebook has won, it is the new Windows, OK?
A few other guys, Twitter, Yelp, Skype, LinkedIn
are building successful platforms that are
much smaller than what Facebook has.
And they will be successful.
But everything else coming along
is going to have to follow the Zynga model.
They're going to have to make themselves
subordinate to the platform of Facebook.
And Zynga's inability to build anything successful
off of Facebook I think is the key indicator
of why this platform is so powerful.
So if you're going to do a start-up today
in the social world, build it on top of Facebook.
That's the only piece of advice I can give you.
But most important piece of advice, forget social!
Social is now a feature, it's not a platform.
So embed social, the same way that Catherine said,
"Embed gamification into everything!"
It's all about engagement.
So the future is going to be different.
And the core question is,
"What are we all going to do about it?"
What I do is very simple: I believe in full contact investing.
So I looked at HTML 5 about a year ago and I said,
"This thing could be really important, how do I find out?"
So my band, Moonalice, which a couple years ago
did an album with T-Bone Burnett, that we thought
was going to be a huge hit and bla-bla-bla, well,
we learned that nobody cared about hippy music
done by old folks so we put it all onto the net.
So we went on Facebook and Twitter, and we started
doing things called twitter-casts, the first live concerts,
and then prerecorded concerts, distributed over Twitter.
And then we started using live stream,
the same thing we're using here today,
to do Internet-based live video for shows.
And then, we recently bought a satellite network. Why?
Because it cost less than three months
of what our manager used to cost.
And right now, we broadcast every one of our shows,
other than the U2 show, live, in HTML 5,
via satellite, in a system we totally control.
We have an App that's about to ship
within the next month. It's App's own term.
Our website is being upgraded to HTML 5.
And in it, you will be able, from any phone, anywhere,
to play any song we've ever played live
and view any live video that we have,
which is 150-200 shows.
Now, it cost practically nothing to do this.
And we're this teeny-weeny little band.
Now, I know more about technology than most people,
but that's just because I know more than most people
who're 55, but people who're 18-20, who live in this world,
are going to be able to use these platforms in music
and everywhere else in a fundamentally different way.
I think creativity is coming back.
Moonalice is something that's built around that.
We have postal orders for every single show.
We have photographers who work every show,
we have painters and the notion is, I believe that
creativity has been stifled not so much by technology,
but by the general deterioration of American culture --
you know, people's unwillingness to be educated,
this notion that we have to fall back
on ritual and beliefs, instead of facts.
But I think technology's finally going to do us a favor.
I think it's finally going to give us the tools to make us independent.
And there's little glimmers, we see the Arab Spring,
and the impact that Twitter and Facebook had.
Pretty exciting. But imagine a world
in which everything is an App.
In HTML 5, digital Detroit gets replaced
by this thing where every tweet is an app,
every advertisement is an instance of a store.
Think about what that means!
So instead of seeing Amazon display ad, you see the store,
say on the New York Times book review.
You can both create demand and satisfy it in the same place.
Why? Because that's better for everybody.
Saves time, increases engagement
because it keeps you on the page.
We're going from a web of elevators,
where you go to different places and you go off-sites
and you lose people, to a control panel model.
And guess who's going to make it!
You are!
Thank you very much!
(Applause)