For Sequoia Capital, 'mobile tectonics' is how it'll find its next billion dollar company

SAN FRANCISCO —- When it comes to “mobile tectonics”, there are three layers.

The foundational, the bottom. Horizontal, the middle. And vertical, the apps layer at the top.

That’s the skinny from Tim Lee, a partner at Sequoia Capital. Lee was describing the rapid revolution of the mobile ecosystem, and what the VCs at Sequoia Capital are looking for when scouting for their next game changing startup.

“We at Sequoia use ‘mobile tectonics’ to figure out where the next billion-dollar opportunity may lie,” Lee said.

The “mobile tectonics’ template, a roadmap really, has kept Sequoia in very good stead. Especially in the mobile sphere. Some of the companies in their evolving portfolio include AdMob, Chartboost, DropBox, WhatsApp, and Square.

Indeed, Facebook bought WhatsApp for $19 billion in cash and stock earlier this year.

“Mobile tectonics” also governs how they advise the companies in their portfolio. Lee said ten years ago, the foundational layer was the only one you had to worry about. But these days you need to worry about all three.

And having killer app offerings is one of the big ways to do this.

Lee said the app ecosystem will total about $30 billion in 2014, with another $30 billion being spent on mobile advertising. But that $60 billion estimation is only one part of the puzzle.

“But both of these are dwarfed by what we like to call ‘on-app commerce,'” Lee said, noting that in his estimation, that market by itself will total $100 billion, if not bigger, in the very near future.

Lee offered up Evernote as key example. Instead of just pursuing a vertical strategy of being a note taking app, Evernote created the “Evernote App Center” that enables other apps to build on top of Evernote — thus creating a horizontal platform strategy as well as a vertical app strategy in a strategic one-two punch.

Other examples of other company’s doing it right, according to Lee, include Kakao Talk, a popular chat app in South Korea, which he said made shrewd “horizontal” platform move.

Also, WhatsApp, which Lee said is a brilliant example of a purely vertical app that made the wise decision to charge its over 500 million subscribers $1 dollar a year for the honor of using the mobile messaging play.

While some companies Lee pointed to incorporate one or more of the “mobile tectonics” equation, Apple includes all three layers.

And also Facebook, which Lee said is rapidly maturing from a purely vertical play to a multi-faceted operator who continues to show massive growth through acquisitions and in-house app development.

Facebook is an interesting story, Lee said, because just a few years ago it was looked at as a pure vertical. But then Mark Zuckerberg and company added a horizontal layer, with Mobile App Install Ads, Facebook Connect, and other products.

This layer now accounts for more than 50 percent of their business.

Lee is watching the emergence of disruptive technology very closely.