2018 In Review: Where We Are Now
A retrospective on the key developments in innovation this year
At the beginning of the year, we laid out four major trends of increasing influence on consumer behavior and technology use over the next few years in our 2018 Outlook report. With this year drawing to a close, we are glad to say that the Lab is once again right on with the trends we picked, all of which gained significant traction throughout the year and entered the mainstream discourse on consumer tech and innovation, as evidenced by pieces of long-form analysis we’ve been adding to each of the four trends as updates.
At the end of the Outlook report, we also laid out six specific areas that we think need to keep a close eye on, as these specific questions serve as concrete manifestations of the larger trends that we dissected. There is no better way to close out our publishing efforts this year by looking back and answering those questions to see where we are at the end of 2018, the year when the curtains closed on the beginning phase of the internet age.
Will world governments regulate any of the major tech platforms?
The short answer here is a resounding yes.
As the world comes to grapple with the myriad of unintended consequences brought on by technology and the resulting digital culture, the tech industry has unfortunately, and in some cases deservedly, become the scapegoat that many politicians love to blame. Unthinkable a few years ago, the media and the public have increasingly cast Silicon Valley as the new Wall Street — omnipresent, entitled, and out of touch.
The EU has taken significant steps and introduced some tangible policies to regulate the tech platforms, including the GDPR privacy law that went into effect in May, a new law that addresses the transparency issue with results ranking, a record $5 billion fine on Google for its monopolistic practices with Android, and a new regulation that requires all streaming services like Netflix and Amazon to carry at least 30% of local content for the region.
In the U.S., no such regulatory sanctions have materialized, but the tension is perceptibly rising on this side of the Atlantic as well. Throughout the year, all major tech companies have, at some point, found themselves at the receiving end of increasing public scrutiny and backlash over either misuse of data, privacy breaches, or ineffectiveness in regulating hate speech. Some are even calling for a breakup of the big tech companies, citing antitrust concerns over the monopolistic tendencies of the major platforms. Even Amazon, a company that is usually beloved by the U.S. consumers, has been caught in intensifying scrutiny among policy makers over its growing market power, as latest seen in the recent fallout of its selection of second headquarters, as well as notable politicians like Bernie Sanders and Elizabeth Warren proposing bills that question Amazon’s labor practices.
The fallout of the 2016 US election continues to ripple and stirs up growing mistrust against Facebook and Google for being used as tools of political manipulation and foreign interference. Both Mark Zuckerberg and Sundar Pichai have appeared in front of a special house committee to defend their companies from such accusations. In fact, as online activities, particularly on social media, and politics continue to intersect, and with more Americans now getting their news primarily from social media than from print, we expect to see more policy makers turning their regulatory gaze towards big tech in the coming year while tech companies defend themselves against antitrust complaints and an escalating trade war between U.S. and China.
Elsewhere in the world, similar anti-tech sentiments are manifesting via regulatory actions directed at the tech industry across many global markets such as India, Australia, and Brazil. Citing passenger safety concerns, China recently tightened legal requirements for drivers of on-demand ride services, leading to a significant price hike for Didi and its competitors and thus curbing their growth. Whatever the manifestations, it is clear that this is a growing trend worldwide that could potentially alter, or at least slow down, the global pace of innovation.
What verticals will Amazon tackle next?
In 2018, Amazon made some significant inroads into healthcare, expanded its footprint in online advertising and brick and mortar, and dipped its toe into the mattress market and even the connected car market. It also hinted at a possible entry into the travel sector in the coming year. Let’s take a look at them one by one.
Perhaps sensing the regulatory headwinds, Amazon has noticeably toned down its relentless pace in entering new markets. Compared to its high-profile entries into the grocery, fashion, and real estate markets in 2017, Amazon kept things low-key entering new markets this year. With the exception of entering the healthcare sector back in January with a splashy joint venture with Berkshire Hathaway and JPMorgan to improve employee healthcare benefits, all other inroads that Amazon has made for the rest of 2018 were done without much fanfare. It acquired online pharmacy startup PillPack in June and announced in August that it is building primary clinics for employees as part of the aforementioned joint ventures. These two moves further solidify Amazon’s footing in the healthcare sector, but its larger impact on consumers remains to be seen.
Elsewhere, Amazon made a stealthy entry into the mattress market with low-cost foam products under its own private label in September, dipped its toe into the connected car market with the dashboard-mounted Echo Auto, and is growing its advertising business at a brisk rate to challenge Google and Facebook’s duopoly on digital advertising. Analysts predict that, if such growth rate continues, Amazon’s advertising business will surpass the revenue from its market-leading web services AWS by 2021. It has also rolled out new plans for a delivery service network that aims to enable entrepreneurs to set up their own local businesses delivering Amazon packages, but has not yet begun leveraging its logistics platform into a consumer shipping offering.
In addition to its continued dominance in the U.S. ecommerce market with nearly 50% market share, Amazon has also expanded its footprint in brick-and-mortar retail, moving beyond collaborative pop-ups to open three new Go stores testing automated checkout concepts and two new 4-Star concept stores in NYC and Denver that aims to introduce its online best-sellers to offline shoppers. The company is reportedly planning to open 3,000 cashier-less Go stores by 2021, with its first non-US location coming to London.
Looking forward, Amazon is reportedly entertaining the idea of testing Go stores at airports, which could offer Amazon a lot of valuable data on how and where their customers travel, as well as what they need when they travel, which could pave the way for Amazon to one day enter the travel industry. In fact, this approach is emblematic of how Amazon enters and disrupts new markets — by leveraging strong customer relationships to gather data via retail and ecommerce touchpoints and using that data to challenge the incumbents with a better user experience.
Does Facebook enter the home? Will Apple turn Siri into a true platform?
Interestingly, both short answers here are self-contradictory. Facebook did enter the smart home market with the launch of Portal in October, yet their mission at conquering the home failed before it even started. Apple still resisted turning Siri into an open platform for third — party voice experiences, but found a great compromise solution instead. Sounds ironic? Let me explain.
The rumor of Facebook being interested in acquiring streaming device maker Roku to make a play for smart home did not materialize, because Facebook has had a particularly rough year in the court of public opinion. Starting with the Cambridge Analytica scandal in March, the social media giant has been facing an escalating brand trust crisis that just won’t let up, partly thanks to the aforementioned increasing scrutiny from media and policy makers. A Recode survey from August found that 56% of Americans trust Facebook the least out of any major tech company. The most evident consequence of this ongoing battle against eroding public trust is Facebook’s decision to delay its smart home video call device Portal, originally slated to launch in May at its developer conference, to a comparatively low-key launch in October.
Perhaps they had hoped the fallout of the Cambridge Analytica scandal would have blown over by Fall, but unfortunately, Facebook has yet to make a full recovery from the reputation hit it took in terms of consumer trust, as evidenced by the public reactions to the product. As we pointed out in our 2018 Outlook report, with more and more connected devices starting to infiltrate our homes, only the brands that consumers trust the most will be granted access into these intimate, personal spaces. While privacy measures should not be the only concern in evaluating a tech product, it is a very real hurdle that Facebook will need to climb over if they want Portal to take off. Given the deluge of new smart home hardware released this fall by Amazon and Google, Portal is going to have an even harder time standing out, making it very hard for Facebook to make a meaningful entry into the home any time soon.
As for Siri, Apple made some significant updates to what developers can do with its voice assistant, but overall continued to resist turning Siri into an open platform for building voice experiences a la Alexa or Google Assistant. At the end of 2018, Siri is still not accessible via non-Apple hardware. With a new Shortcuts feature introduced with iOS 12, Apple made a significant step towards closing the functionality gap between Siri and its rivals by allowing users to quickly access specific functions of apps with contextual Siri suggestions and customizable phrases for voice command. This move allows Apple to expand Siri’s functionality without loosening control over the user experience, thus bringing Siri one step closer to becoming a developer-friendly feature that they can tap into to drive usage and engagement.
In the coming year, we expect Apple to continue working on improving Siri. The Cupertino company made news when they hired John Giannandrea, Google’s former head of search and artificial intelligence, to helm its own machine learning and Siri projects. In addition, some recent reports also suggest that Siri may be getting multi-user support soon, which would surely further boost its usefulness. At the end of the day, it is important to remember that one, Siri is still the most used voice assistant with 10 billion requests processed every month on the iPhone and a robust high-value user base; and two, Apple is already laying some solid groundwork to bring voice computing out of smart speakers with Siri-enabled Apple Watch and AirPods, which are proving difficult for competitors to match. Now that it is taking some major steps to open up Siri and boost its functionality, Apple may very well end up being a dark horse in this race of voice computing, despite not having a fully open voice platform.
How will the use cases and business models for AR develop?
In 2018, augmented reality continues to gather momentum and expand its use cases, but it failed short at establishing a business model that befits its paradigm-shifting potential.
The releases of Apple’s ARKit and Google’s ARCore in 2017 paved the technical foundation for mobile AR and made it widely accessible for millions of smartphone users. Axios reports that there are already 700 million iOS devices capable of running ARKit, while Google’s ARCore is supported an additional 150 million devices Mass adoption is within reach, but by and large, the tech industry is still figuring out the right use cases and product-market fit for AR.
Creating fun, AR-powered mini-games and game-like experiences is an immediate opportunity that many IP owners have picked up on, thanks in part to the massive popularity of Pokémon Go. In 2018, we saw the release of similar AR games featuring Ghostbusters, zombies from The Walking Dead, and dinosaurs from Jurassic Park. In 2019, we expect AR gaming to diversify, as Apple’s promising multi-person AR gaming demos featuring Lego at this year’s WWDC indicate.
Outside AR-powered mobile gaming, developments in non-gaming AR applications also shows promising signs. Some developers have started to explore utility-oriented AR experiences that add value to user experience. For example, KLM airline and travel booking site Kayak have incorporated AR features into their apps that measure the size of luggage to help travelers figure out if their carry-ons fit within the airline policies.
In addition, platform owners like Facebook, Snapchat, and Unity have all started testing their respective AR ad products, allowing brands to start experimenting with AR ads on those mass-reach platforms to engage and delight consumers. Looking ahead, AR shows great potential to be more widely employed to enhance print and OOH campaigns with contextual information and interactivity, as well as to be further integrated into education and employee training efforts.
In terms of business model, however, AR has yet to figure out a unique sustainable path forward. While the future of AR is undeniably in smart glasses and contact lenses, none of them seem ready for mass market today. For now, mobile AR is more than competent for powering the AR use cases that exist today, and they mostly run on a business model close to the mixed model in the app economy. As we explained, most of the high-profile AR apps today are either developed as a promotional tool for known IPs or as a utility add-on to an existing app. We will have to wait and see how the AR industry would figure out a business model that works for this revolutionary technology.
How much market share will voice and visual search capture?
According to a 2016 report by analyst Mary Meeker, voice search and visual search, together, are projected to make up 50% of global searches by 2020. Now, at the end of 2018, we are well on track to that future of diversified search methods.
Voice-enabled devices, led by smart speakers, continue to penetrate the home consumer market. Ownership of these devices increased 14% from January to August of 2018, according to the latest data from Adobe Analytics, with nearly one-third of US consumers owning a smart speaker. Moreover, analysts are expecting holiday promotions to bring adoption in the US to half of all US households. Among them, over 73% of U.S. smart speaker owners conduct voice search on a weekly basis, if not daily, per data from an April 2018 survey by NetElixir. By simple math, it would seem safe to conclude that at least 36% of U.S. consumers will be turning to voice assistants in the home for search queries as 2019 begins. And that’s not counting the millions of smartphone users that are already asking Siri and Google Assistant to search the web to answer their questions.
As for visual search, the user adoption was comparatively slower in 2018. According to eMarketer’s 2018 Visual Search report, about 1 billion visual searches happen per month. That’s a tiny fraction of overall search, which renders hundreds of billions of queries per month, but it’s growing, and it is not with significant progress in terms of availability.
Google Lens saw an extended rollout throughout 2018, especially in the second half of the year, It first rolled out to Android phones via Google Photo in March, released as a standalone Android app in June, then was gradually integrated into both Image Search and Google Assistant across platforms in September, and most recently, came to Google’s main iOS app. Meanwhile, its primary competitor Pinterest Lens, which has already been widely available across platforms through the Pinterest app, continues to make a strong case for itself, as it continues to release new features like text recognition, improve accuracy of results, and double down on product discovery by increasing its click-through rate by 40% for its retail partners.
Not to be outdone, Snapchat also caught up on tying visual search to product discovery and commerce as it started testing a visual search feature that enables product search and direct purchase on Amazon.com, a win-win partnership that should propel visual search as a new ecommerce channel into mainstream consciousness. For what it’s worth, Amazon finally dusted off its long-neglected visual search tool and featured it in a Cyber Monday promo to encourage usage.
The wave of new tools has increased awareness of visual search among smartphone users. In 2017, retailers such as Target and Home Depot have already started to incorporate visual search tools into their own apps to drive discovery and sales, and more retailers such as Forever 21 and ASOS joined them in 2018. And as consumer awareness grows, so will user adoption. Given that search currently commanding over 46% of total digital ad spend in the U.S., the rise of voice and visual search is set to make marketers reconfigure their digital media mix.
How will content distribution windows change?
The short answer here is “not yet, but soon, and in a big way.”
Content windowing, especially for film and television, is seeming increasingly archaic in the era of a strong, global Netflix. But what turned out to be even stronger are the wills of established media owners to hold on to their (still quite profitable) windowing strategies to maximize physical media sales and various licensing fees, even at the expanse of growing increasingly at odds with the shifting viewer behavior and consumer expectations. Therefore, there were no significant changes in the overall content distribution window this year.
But it would be remiss to assume that things would stay the same in 2019 and beyond, for this year also brought many seismic changes in the U.S. media industry that pave the way for an industry-wide shakeup in content distribution that is practically penciled in for the second half of 2019. Disney’s blockbuster acquisition of 21st Century Fox assets and their impending launch of Disney+, their own Netflix-style OTT service, in late 2019 will no doubt allow the Mouse House to cut out a lot of middlemen like movie theaters in the windowing funnel and go directly to consumers. Given the sheer market share Disney now commands at the box office, it would not be unreasonable to expect the company to have some leeway in negotiating with the cinemas to experiment with the theatrical release window for some of its smaller releases in coming years. And given recent rumors of a regulatory revamp that would allow movie studios to own theaters again, perhaps Disney, and other production companies including Amazon and Netflix, would simply acquire or open their own theaters.
Speaking of the two streaming services, both Netflix and Amazon have been repeatedly trying to push the envelope on the distribution window. Netflix famously prides itself on having no release window and used to launch all its content live simultaneously worldwide. But after two consecutive run-ins with Cannes organizers over the eligibility of its original movies, the streaming powerhouse has seemingly relented and started to work with select exhibitors to release movies for a short theatrical run. With its critical darling Roma poised to bring home some Oscars, Netflix even opted for an advanced theatrical release 3 weeks before releasing the movie on its platform.
Meanwhile, Amazon has long had a more amicable relationship with the theater exhibitors as it routinely puts its original films into theatrical runs before releasing them on Prime Video, albeit with a much shorter gap than those implemented by traditional movie studios. Lately, Amazon has also been offering advanced screenings for theatrical releases it didn’t produce, such as last year’s Jumanji remake as well as the upcoming Aquaman, as part of the perks of Prime membership.
With movie theaters experiencing similar strains to brick-and-mortar retail, cord cutting accelerating, and major players clamoring for a “super-premium VOD” window that matches theatrical releases, we may be reaching a breaking point in conventional content distribution. And once the theatrical window is broken, the video content industry will have to figure out how to best grab and monetize audience attention in a world where everything is available across platforms.
Judging by the way things played out in 2018, it looks like we are in for another rather turbulent year where we’ll have to come to face the unintended consequences of technologies and our increasingly digital life. AR and smart speakers will continue to grow their user base and develop new use cases, just as Amazon is sure to expand into more new markets. Big changes are coming to the U.S. content industry in 2019, and that will have a rippling effect on the media landscape. If you are keen to learn more about what 2019 might bring, be sure to check back in January to read our coverage of the 2019 CES from Las Vegas, and later, our 2019 Outlook report.