Why are Internet products becoming more and more difficult to build?

Recently, Uber's head of user growth, Andrew Chen, published an article on his personal blog saying that it has become increasingly difficult for mobile Internet products to achieve user growth. 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 explored in this article include:

• Platform Solidification

• Paid customer acquisition channels are close to saturation

• Ad ignored

• Advanced tools lower operational barriers

• Competitors become more agile

• From fighting against "boring time" to fighting against Google/Facebook

As if suddenly, 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 quickly expand into new ones, as Grad says:

At the end of a cycle, technology markets tend to be characterized by a rapid diversification of 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, a diversification trend suddenly appeared in 2000-2001, and 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 a startup investment return perspective, these industries ultimately failed.

Nanotechnology and clean technology were part of the previous cycle, and now we are talking about the next cycle.

1. Platform Solidification

Compared to the web, the Google/Apple duopoly on apps appears more concentrated, more closed, and less rich (from a growth perspective), which means mobile is harder to break into. The function of the app store seems to be a ranking list, providing some must-install apps and recommending some selected apps, and all of this is promoting the "winner-takes-all" characteristic of the mobile ecosystem.

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

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

As growth opportunities decrease, paid customer acquisition channels have become saturated.

2. Customer acquisition channels are close to saturation

Paid customer acquisition can still be a useful method if you can find an untapped audience with a high ROI. However, this approach only works if costs don’t increase and there isn’t 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: the competition for advertising on Facebook is getting fiercer and fiercer.

In 2017, there were more than 5 million advertisers on the Facebook platform, compared with 4 million in the third quarter of 2016 and 2 million in 2015. During its first-quarter 2017 earnings call, Facebook told investors that while revenue increased significantly in the first quarter of 2017 compared to 2016, it expected ad revenue to be close to saturation point.

Currently, Facebook has 2 billion users, with 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.

3. Advertisements are ignored

Internet users are getting smarter. Today, most invitation systems are far less valuable and effective than they were 10 years ago (Dropbox’s invitation system was amazing when it first appeared). Not only do users ignore ads, but they are often blind to the invitation mechanism and virality.

In the latest Internet Trends Report from "Queen of the Internet" Mary Meeker, she said that 1/3 of people in some countries are using ad blocking functions, and that soon, ads will be unable to reach as many as 600 million monthly active users (MAU):

Source: 2017 Internet Queen Report

This is the 2017 version of the “Law of Bad Clicks.” I proposed the "Law of Bad Clicks" a few years ago. At that time, the click-through rate of email marketing had already declined:

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

These trends are disturbing and suggest that certain channels are becoming less engaged, and we haven’t yet discovered exciting new channels to replace them.

4. Advanced tools lower operational threshold

As there are more and more advertisements, the use of tools such as Mixpanel, Leanplum, and Optimizely has become more and more common, which has narrowed the gap between companies in terms of data-drivenness.

Ten years ago, we attached great importance to the indicator of the total number of registered users, but not 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 groups. Engineers and data scientists love it, and it can create simple charts like this:

In the B2B field, the same phenomenon occurs. With the help of some tools (Mixmax, Outreach, insidesales.com, etc.), tasks that used to be difficult have become easier. But as a result, competition has become more intense. As tedious tasks become automated and simpler, it is inevitable that more people will enter this field.

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

5. Opponents become more agile

In the past, startups benefited from competitors being “big, dumb, and slow.” That’s different now. Everyone is getting smarter and faster, including the competition. In the past, it might have been years before your competitors responded. Now, Facebook, Hubspots, and Salesforce can copy your new ideas at any time.

The most famous example is that Facebook quickly copied the functions of Snapchat into its own Messenger, Instagram, Whatsapp and other core products:

And this doesn’t just happen with consumer products: Dropbox versus Google Drive, Slack versus Microsoft Teams, YesWare versus Hubspot Sales… the list goes on.

6. From fighting against "boring time" to fighting against Google/Facebook

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

As this cycle draws to a close, competition among companies becomes increasingly a zero-sum game.