Jul 5, 2016 ยท 5 minutes

It’s coming.

As we pass the midpoint of the year and wrap up the second quarter, a flood of data is about to come out about just what transpired in the world of venture funding, at what price, in what volume, where in the world and what it all means.

I will-- as usual-- be a prime offender in this quarterly autopsy of cash.

My prediction is: Number of mega deals and unicorns continue to slow, maybe some deceleration at all levels of funding -- finally-- as Mattermark has already reported.

But there was no cliff. There is no crash. It’s an extraordinarily uneven time. The euphemism “flight to quality” will be used a lot. But really your 2016 is dependent on what sector you are in (ecommerce is more brutal than usual as the last of the flash sales companies and subscription commerce companies sell/struggle) and how connected you are to international cash.

Just as we continue to anticipate-- and mostly not see-- a crash, two sectors are clearly getting hotter: Messaging and self driving cars.

This is what I love about writing about this industry. No one predicted when the iPhone came out that this would be the two big opportunities in 2016, with nearly every major tech company in the world, some of the oldest rust belt companies in the world, and a dozen or more unicorn startups all vying for a piece of one or the other.

There’s more news today on both. Japan-based Line is about to go public, "citing strong demand," even amid a lousy market.

And Zoox, another startup in the self-driving car space, has raised capital at a $1 billion valuation. That’s a heady price given Uber looks out-gunned in the coming battle between Google, Tesla, and Apple. Be forewarned one of the investors in this round is Tim “There’s nothing wrong with Theranos!” Draper. Still, given the capital at stake hopeful VCs will keep funding companies like these hoping for an acquisition if nothing else.

It’s fascinating that messaging and self-driving cars are both so big at once and both the natural extension of smartphones and both so globally appealing as investment opportunities, because they are both so different. It’s hard to imagine which prediction would have been more pooh-poohed back then:

Messaging? Wait, don’t we have text? And email? And social media? Do we really still need a new way to send a note to one another? That’s going to be huge?

Self-driving cars? Please, the Valley isn’t that innovative any more. We don’t do real tech… just more bullshit ways to send photos and notes to each other….

There are several things that make these two battles being fought in parallel fascinating and different than other battles we’ve seen in the Internet and mobile age.

The sheer scale of the cash and money at stake. Google has a $476 billion market cap. Apple has $518 billion market cap. Facebook has a $324 billion market cap. Tesla is worth “just” $30 billion. We’ll see this week what Line is worth. And of course there are the inflated private valuations of Snapchat, Uber, Lyft and Didi that would be lucky if they traded anywhere near Tesla’s price when they file. Let’s assume those four are worth just $40 billion in real world prices. We’re talking about some $1.3 trillion in firepower between these two opportunities alone just with the existing major players.

The global nature of the battle. Messaging is far more interesting internationally, given how savvy Facebook has been at dominating it in the US. And that’s fitting because most of the innovation around messaging came from Asia to begin with.

When it comes to cars, China is already the largest market for ridesharing and no doubt will be the largest consumer of self-driving cars eventually as well. Or anything else that remakes urban transportation as we know it.

I can’t remember ever seeing non-US markets be some of the biggest innovators, the biggest consumers and potentially have the biggest winners of a tech wave.

The incumbents are stronger than ever. It isn’t just cash and market position. Incumbents have always had those and nimble startups have always out-navigated them. But Facebook and Google -- in particular-- have been smarter, more paranoid, and more aggressive than I’ve ever seen two companies at this size be. They’ve acted more like VCs than publicly traded companies in how they size up acquisitions and how they bet on “moon shot” technology. That’s left less room for startups to drive a wedge.

And because technology is changing so quickly, even Uber’s wedge in ridesharing could become obsolete once we’re in a driverless world.

The only wedge anyone seems to have is China. Uber is burning billions to be a minority player in the largest ridesharing market and China is Facebook’s personal kryptonite.  

The great disrupters need old economy help. After a lot of posturing about building its own cars, Uber has now decided to partner with big automakers. Lyft never even pretended it could do it on its own. That’s right: We have levels of incumbents all partnering up in different ways in the auto space.

Two things could happen at the end of these battles that I’ve never seen before: A major new wave of technology funded by shitloads of capital may not yield a crop of new standalone public companies. Facebook has all but locked up messaging everywhere but Asia, and Snapchat is trending closer to a future Twitter than a future Facebook.

The incumbents are so strong and the cash needed-- particularly in the automotive battle-- are so great that even $60 billion Uber could wind up a niche player with a shadow of its former valuation or bought for its app software unable to compete using someone else’s cars. History has shown that controlling the hardware and the software is a winning combination.

The other potential outcome? There may be huge standalone giants-- the next Facebooks and Googles of the world-- they may just not be based in the US.

One thing is certain. Even if funding levels overall continue to contract, the tech giants driving innovation in this cars and remaking their business around messaging will keep cash flowing and startups getting funded.