One thought that I have been grappling with for some time: have we hit peak internet? Is consumer innovation driven by the internet sort of over? Is the business model of two programmers hacking away and building companies — made possible by free distribution — now finished?
Game of Scale
6.6 billion smartphones across the world and ubiquitous 4G internet led us to software eating the world, the coronation of the FAANG moniker, and big tech topping 25% of S&P market cap. From entertainment to gaming, education to commerce, logistics to financial services to healthcare to mobility — internet-enabled companies have taken over the old guard.
Trends and Fads
The VC and tech industry has been, in general, a fad-driven one. Dotcom bubble in the late 90s. Social networks in the early 2000s. SO-LO-MO post the 2008 crisis. The sharing economy in the mid-2010s. Quick commerce in the late 2010s. Fintech. Edtech. The creator economy. Each wave bigger than the last, each sucking in talent, capital, and attention.
But these days, apart from crypto/web3, I don't see another clearly emerging trend of similar magnitude. The pipeline feels thin.
YC as a Leading Indicator
Y Combinator — having built the most formidable startup accelerator brand — has long been a leading indicator of where the industry is heading. Off late, YC has focused significantly on "this-of-that" investing: taking ideas from mature Western markets and building them for newer geographies. This is reflected in their increasingly international cohorts.
The US startups YC funds these days tend to be of two kinds: SaaS and developer tools on one end, and deeptech on the other — space, self-driving vehicles, electric vehicles, energy, biotech. With an increasing trend of VCs pivoting to web3 or SaaS, there seems to be a genuine rut in consumer-internet innovation.
The Cold War Parallel
The upcoming realignment of the world from a unipolar model to a G2 or multipolar one also foretells something interesting. Large government funds will be deployed to fund research that helps countries win the next great power competition. If the previous cold war is any indication, a lot of innovation will pour into:
- Drones and autonomous systems
- Biotech and synthetic biology
- Energy — nuclear, specifically
- Cybersecurity
- Spacetech
China already wants to pivot away from the Alibaba/WeChat consumer economy and toward pharma, manufacturing, and energy innovation. This will pull a lot of smart talent away from FAANG, big tech, and consumer startups toward these fields — further thinning the talent pool for consumer internet.
The Other Side
Having said all this: while we may have hit ubiquity in smartphones, the explosion of IoT devices hasn't fully happened. We're still very far from saturation in smartwatches, smart speakers, and connected home devices — all of which will enable genuinely new use cases and behaviors.
Even within existing categories, the penetration of utilitarian software — search, music, e-commerce, productivity — still remains in the late teens or low twenties as a percentage of the global population. And history shows companies can arrive late into a mature market and simply blow it apart with a new product insight. Snapchat's ephemeral stories. TikTok's vertical short video loop. Gopuff and Zepto reimagining local delivery with a 10-minute promise.
The trend may look bleak now. But one lesson from 2010–2020 is that trends just keep getting bigger. I remain an eternal internet bull.
P.S. 1 — I've excluded web3/crypto from this analysis, given the risk of the whole space being regulated out of existence.
P.S. 2 — I believe the innovation in deeptech will be spearheaded by the current crop of internet companies, but that innovation will be fundamentally different from quickly programming something and shipping it. It will be more research-focused, require specific skill sets, and demand very large initial investment.
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