Analysis | Why is it becoming increasingly difficult to make Internet products?

Recently, Andrew Chen, head of user growth at Uber, published an article on his personal blog saying that it is becoming increasingly difficult for mobile Internet products to achieve user growth nowadays. The reason is that the technology growth cycle we are currently in is about to end. So, what implications does this have for startups ?

Trends to be explored in this article include:

Platforms are solidifying. Paid customer acquisition channels are approaching saturation. Advertisements are ignored. Advanced tools lower the threshold for operation. Competitors are becoming more agile. From fighting against "boring hours" to fighting against Google /Facebook

It seems that all of a sudden, entrepreneurs and investors have begun to enter some new fields - genetics, vertical take-off and landing flying cars , cryptocurrency, AI , the Internet of Things, etc., trying to find new opportunities. To understand this phenomenon, it is necessary to recognize the trends mentioned above. After all, if you can’t grow in your existing markets, you need to move quickly into new markets, as Gladwell says:

At the end of a cycle, technology markets tend to see a rapid diversification in the types of startups that receive funding . For example, after the explosion of the mainstream Internet market (Google, Yahoo , eBay, PayPal) in the late 1990s, there was a sudden diversification trend in 2000-2001, when people began to invest in P2P and mobile devices. Then in 2002 and 2003, people began to pay attention to clean technology, nanotechnology, etc. From the perspective of venture capital returns, these industries ultimately failed.

Nanotechnology and clean technology belong to the previous cycle, and now we are talking about the next cycle.

The Google/Apple duopoly on apps is more centralized, more closed, and less rich (from a growth perspective) than the web, which means mobile is more difficult to enter. The app store functions like a leaderboard, offering a few must-install apps and recommending a few featured apps, all of which promote the "winner takes all" nature of the mobile ecosystem.

It’s no wonder that the rankings in the app stores have become ossified over the years, with Facebook and Google now controlling several of the top 10 spots in the mobile ecosystem:

If you want to launch a new app, how do you deal with this situation?

As growth opportunities decrease, paid customer acquisition channels are becoming saturated.

Paid acquisition can still be a useful approach if you can find an untapped audience with a high ROI. However, this only works if costs don’t increase and there isn’t too much competition for the same ad inventory. Unfortunately, this good thing no longer exists.

Let’s take a look at how Facebook’s average revenue per daily active user (DAU) has increased over the past few years:

Of course, there are many factors driving this growth, such as relevance, targeting, etc., but one key reason is that advertising on Facebook has become increasingly competitive.

In 2017, there were more than 5 million advertisers on Facebook’s platform, compared to 4 million in the third quarter of 2016 and 2 million in 2015. During its Q1 2017 earnings call, Facebook told investors that despite seeing a significant revenue increase in the first quarter of 2017 compared to 2016, it expected advertising revenue to be close to a saturation point.

Currently, Facebook has 2 billion users, a year-on-year growth rate of 17%. Whether it can provide more advertising opportunities depends on whether the user base can continue to grow or whether users can spend more time on Facebook.

Internet users are getting smarter. Today, most invite systems are less valuable and less effective than they were 10 years ago (Dropbox’s invite system was magical when it first appeared), and users not only ignore ads, but also often ignore invite mechanisms and virality.

In her latest Internet Trends report, Mary Meeker said that in some countries, a third of people are using ad blocking, and that ads will soon be unable to reach as many as 600 million monthly active users ( MAUs ):

This is the 2017 version of the Law of Shitty Clickthroughs. I first coined the term “Law of Bad Clicks” a few years ago, when email marketing click-through rates were already declining:

The click-through rate of traditional banner ads is getting closer and closer to zero:

These are troubling trends, suggesting that some channels are seeing declining user engagement, while we haven’t yet discovered new and exciting channels to replace them.

As advertising grows, the use of tools such as Mixpanel, Leanplum, and Optimizely is becoming more and more common, which narrows the gap between companies in terms of data-drivenness .

Ten years ago, we attached great importance to the total number of registered users, but did not pay attention to MAU, DAU or other more detailed indicators. One of the key features of Mixpanel is that it allows you to see retention rates based on cohorts. Engineers and data scientists love it, and it can create simple charts like this:

The same phenomenon also occurs in the B2B field. With the help of some tools (Mixmax, Outreach, insidesales.com, etc.), tasks that used to be difficult have become easy. But this has also made competition more intense. As tedious tasks become automated and simplified, it is inevitable that more people will enter this field.

As a result, everyone involved becomes more efficient. Everyone has a deeper understanding of the customer acquisition and retention rates of their products. Everyone has learned to increase the lifetime value of users by looking at data, and will inevitably invest more money in advertising in the end.

In the past, startups could benefit from their competitors being “big, dumb, and slow.” It’s different now, everyone is smarter and faster, including our competitors. Where once it might have taken years for your competitors to react, now the Facebooks, Hubspots, and Salesforces can copy your new idea at any time.

The most famous example is how quickly Facebook copied Snap’s features into its own Messenger, Instagram, WhatsApp , and other core products:

And this isn’t just happening with consumer products:

Dropbox vs Google Drive
Slack vs. Microsoft Teams
YesWare vs Hubspot Sales
...There are many more examples like this.

When the App Store was first launched, an app’s competitor was actually people’s “bored time.” Mobile app developers want you to use their apps during boring hours (waiting in line, commuting). But today, acquiring a new user for your app means asking him to give up his current favorite app.

As this cycle draws to a close, competition between companies is increasingly looking like a zero-sum game .