Insights on the current Digital Boom

I had the good fortune of hearing Henry Blodget, CEO of Business Insider, speak at last Tuesday night's Digital Investing class. Mr. Blodget shared stories about founding and building the company, explained the trends that Business Insider is capitalizing upon, and his thoughts on where the news media business is heading. A few weeks before that, he presented at the Digital Life Design Conference in Munich, and shared some insights that should be eye-opening for anyone whose business is affected by digitization (in other words, all of us). The slide deck is available here.

Because you probably don't have time to read through the entire deck, I wanted to synthesize some of the key themes and highlight some of the most compelling points.

The first and most obvious point is the growth of all things digital, and especially mobile- growth in smartphone sales, connected devices, etc. There are some surprising datapoints here- for instance, tablets are growing at the slowest rate since introduction (perhaps due to cannibalization from "phablets", the fastest-growing mobile category). Also, contrary to popular belief, the market dynamic is not just Apple vs Samsung- Chinese smartphone manufacturers now represent ~25% of worldwide sales.

Secondly, it is sometimes easy to mindlessly praise at the growth of technology, and overlook the "creative destruction" and decline of traditional media delivery vehicles. Print revenues for newspapers are significantly less than half of what they were at peak in 2005-2006, and the growth in the online businesses for newspapers has only made up a very small fraction of this difference. Uber and other digital businesses promise to provide the same level of disruption to other traditional industries.

Perhaps the most mind-blowing fact in this presentation is the absolute growth and domination of Google- it is now bringing in significantly more ad revenue itself than ALL newspapers and magazines in the US combined, and is roughly half the size of the ENTIRE global TV ad market. Wow. Additionally, Google is crushing it in terms of Chrome, Android, and YouTube market share in each respective market as well.

Similarly, according to Nielsen, Facebook reaches more people 18-24 than the four major TV networks. Netflix now has more subscribers in the US than HBO (though the release of the standalone HBO Go app may change that). It is inevitable that money will follow the eyeballs, and this represents a big threat to any traditional media companies who don't get directly into the digital distribution game themselves. However, a growth opportunity exists with the lines blurring around "primetime" TV, as people time shift their viewing and watch more on mobile devices. This effectively creates an 18/7 split, meaning that media companies can potentially monetize ads 18 hours a day due to increased consumer engagement- representing an increase in the inventory that they can deliver for advertisers.

Despite all of the positive trends and optimism regarding digital revolution, Blodget points to historical booms/bubbles as well as the inevitable busts that followed. He articulates that, based on capital flows and fundraising, we are in a boom but not quite a bubble like the late '90s (though I would argue we are pretty damn close- 2014 numbers weren't fully reflected on his charts, and those valuations are creeping towards late '90s levels).

Based on these charts, the average period from beginning of boom to bust appears to be around seven years. If you categorize the beginning of the current boom as beginning in 2009, that posits a bust occurring sometime in 2016.

Is the party over for these guys? I don't think so, but they might want to exercise those stock options before the end of the year... 

Source: http://www.businessinsider.com/blodget-boom-will-become-bust-2015-2?op=1