Please enjoy ARK Disrupt Issue 77. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.
1. What Is Going On In the Bitcoin and Broader Cryptoasset Space?
The bitcoin price continues to climb a perennial wall of worry. While DCG, a large investor and operator in the cryptoasset space, achieved some success at Consensus 2017 in brokering a deal in the community to increase Bitcoin’s transaction capacity, subsequent pushback suggests that a clean agreement around scaling might be closer but is not guaranteed. Meanwhile, reversing their January decision, Chinese exchanges now are allowing withdrawals in bitcoin, not just in fiat currency, contributing to another leg up in its price.
The broader cryptoasset markets have been on fire during the last three months. Excluding bitcoin, the aggregate network value of cryptoassets has soared more than ten-fold, from $3.5B before March 10 when the SEC denied the approval of the Winklevoss bitcoin ETF to roughly $45B today. Take a look at a few eye-catching charts from CoinMarketCap: https://coinmarketcap.com/charts/
Based on ARK’s research, cryptoassets are part of a new asset class, with cryptocurrencies a subset. Other verticals include cryptocommodities like ETH, STORJ, SC, GNT and cryptotokens like GAME, REP, GNO.
Cryptoassets are giving birth to Internet 3.0. This time around, incentives are focused around decentralization, in contrast to the natural monopolies created by data aggregation strategies that have benefited companies like Facebook, Google, and Amazon. Now we have to figure out how long it will take these decentralization strategies to disrupt the titans of the internet.
2. Mobile Ad Spend Is Hitting Equilibrium, With TV Potentially The Next Source of Growth
In Mary Meeker’s Internet Trends 2017 deck, many analysts have focused on share of time spent vs. advertising share by media outlet. The chart below illustrates how much the advertising world has changed during the last two years, with 2014 comparisons in red. Logically, advertising share should track share of time spent.
Source: Mary Meeker, KPCB
In reality, the comparisons are not so tidy or timely. In 2014, media buyers spent far more on traditional media, especially print and TV, than they should have if consumer attention were the key determinant. Print, for example, captured 18% of ad spend despite its paltry 4% of consumer attention. This year, print’s share shrank more than 30% to only 12% of total ad budgets, continuing to adjust to lost time and attention. That said, the 800 basis point difference between percent of ad budgets and time spent on print still is gaping.
During the past two years, mobile is the only category that has flourished: it increased from 24% to 28% of total time spent while jumping from 8% to 21% of ad budgets. That said, given these results the mobile opportunity could be maturing in the US. Based on attention paid today, mobile has another $16 billion in untapped advertising potential, according to Meeker’s analysis, not much given the $150 billion in combined revenue of GoogleGOOG and FacebookFB expected this year. Consequently, both have been focusing increasingly on video ads, as TV still is a $70B market in the US. Indeed, video is the #1 strategy of just about every internet company these days.
3. Google Connects Online Ads to In-Store Credit Card Purchases
Because advertising has been one of its biggest revenue drivers, GoogleGOOG has focused its efforts on developing tools to improve the accuracy of ad placements: ads at the right place and at the right time. Google already monitors online shopping, and began connecting mobile phone location data with Google searches in 2014. In fewer than three years, Google has tracked more than five billion store visits, giving marketers deeper insight into the connection between online and offline shopping.
That said, store visits do not equal purchases, and marketers measure the performance of ad spend by “conversions”. To address that weak link, Google is using complex mathematical models and double-blind encryption to connect user searches with their offline purchases in hopes of boosting the relevance of its ads.
The ability to link online ads with in-store purchases should give retailers a clear measure of the return on investment (ROI) of their search ads on Google. If Google can continue to deliver on its high ROI promises with this offline strategy, then it will be able to tap into the 90% of US retail sales that still are offline, and it also could boost revenue generated per search from $0.04 toward Facebook’s $0.08, as shown below.
Source: ARK Investment Management LLC
4. On-Demand Bikes Take China by Storm
In just one year, the adoption of on-demand bikes has taken off in China, as shown below. The number of bike sharing users in China is set to reach 50 million by the end of 2017, roughly triple the 18 million a year ago.
ARK is focused on this trend because of its potential impact on both vehicle sales and autonomous vehicle adoption. Priced at roughly $0.12 per mile in China, the uptake of on-demand bikes validates the contention that cheaper mobility will spur rapid adoption. For perspective, according to ARK’s research, shared autonomous taxis will cost $0.35 per mile in 2020, roughly half of the $0.70 that the average US auto owner pays today.
ARK’s take is that bike sharing could be complementary to autonomous taxis, especially for last-mile transportation. As will be the case with autonomous taxis, bike sharing will serve those without drivers’ licenses. In China, roughly 80% of the eligible population goes without a license for one reason or another, compared to roughly 20% in the US. Both bike sharing and autonomous taxi networks should contribute to a decline in auto sales as mobility becomes cheaper through shared on-demand resources.
5. Which Companies Would Consumers Trust With Their Health Data?
According to Mary Meeker’s 2017 Internet Trends, Google is the company most consumers would trust with their health care information. The Rock Health 2016 Consumer Survey which Meeker referenced also found that MicrosoftMSFT , SamsungSSNLF , AppleAAPL , and AmazonAMZN trailed Google, as shown below.
Given the backlash at times against Google’s access to and use of consumer information, as well as its outsized profits from search, we found these survey results somewhat surprising. Apple’s position in fourth place was particularly puzzling in the aftermath of well-publicized moves to protect consumer privacy during last year’s FBI inquiries. Unlike Google, Apple does not seem to collect and profit from its consumers’ data. Moreover, the Apple Watch has made significant inroads into the health care space, not only as a consumer health monitor but also as a monitor in drug trials.
Perhaps consumers are resigned to the fact that Google already has so much information about them, and they just want to limit the proliferation of their data…or perhaps not. Based on a straw poll during ARK’s brainstorm on Friday, Apple and Amazon came out on top, while Google didn’t make the cut.
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