Mobile Tectonics

I skate to where the puck is going to be, not where it has been.”

2010-11-22T17:33:00.000-08:00

Where is the puck going? In this case the "app" puck?

RIM is betting on "SuperApps"

http://us.blackberry.com/developers/started/super_apps.jsp

What are some characteristics of superApps? As defined by RIM this includes the following features (drawn from their website):

When running in the background, a Super App can pull down critical data, update its Home screen icon and register custom menu items with the native BlackBerry smartphone applications. A Super App can also:

Start when the BlackBerry smartphone is powered up
Listen and react to events
Listen for inbound push data
Download content before the user needs it
Generate notifications
Share data with other third-party apps

Windows Mobile 7, as seen by anyone who has not been hiding in a cave for the past few weeks, is also pushing a similar concept with their always updating tiles

I think the concept of a SuperApp, Utility or Whatyoumightcallit is pointing towards where the Puck is moving next. My definition would include something similar to RIM's:

- Always on, always useful even without always having network access

- Pushed to you, before you ask for it

- Context, location and occasion aware

- Portable across devices

- Seamlessly moving across heterogenous networks

Mobile Utilities

2010-11-20T11:22:00.000-08:00

I have been thinking a lot about the concept of a "mobile utility". I think Blackberry e-mail is a great example: once you have set the service up, you just wait and your e-mail just comes to you, alerts you through vibration and maybe some lights on the phone, you click on it and you see it. Why can't more things be like that? We have been experimenting at MobileAware with the notion of taking airline check-in to the level of "utility". Same deal as with email, with a bit of set-up, the expectation is that when you are due to check-in, the service would complete 99% of the check-in process for you and send a text asking you to confirm.

(by the way, I am reviving the blog after almost a year of disuse) - let me know if the content is interesting

Deflationary Business Models

2009-12-22T12:46:00.000-08:00

I was interested to read a story about deflation in Japanese coffee dispensers in the FT http://www.ft.com/cms/s/0/d0bad846-ed91-11de-ba12-00144feab49a.html. This made me think about the tremendous amount of capacity overbuild in Western economics on the back of artificially low interest rates, and the concomitant excess in capacity. Would that not tend to suggest that we should also be seeing some interesting deflationary dynamics? What is novel is that unlike the deflation in goods that we have experienced in the past years - enabled by cheap Chinese imports - the new deflation might come in the form of services, which have for the most part resisted such tendencies. Some of the groups that have captured on this trend include players such as Groupon.com - who just snagged $30M from Accel and is based in Chicago, and Buywithme.com, which is based in Boston.

Mary Meeker has spoken

2009-12-22T12:37:00.000-08:00

Following on her initial shot across the bows a few months ago, Meeker and team from Morgan Stanley have come out with the definitive bible on the Mobile Internet. The blogosphere has responded in kind, see a few samples below. I was fortunate to have a plane ride long enough to be able to digest all 500+ pages last week and I fundamentally buy what she is selling. Some of it is repetitive, and known territory but there is also some original thinking around the convergence of mobile and social media (not that this convergence has not been predicted for some time, but a case around how it might happen). I think this all reinforces some of the themes around which this blog is anchored

Mobile Internet Could Surpass Desktop, Says Morgan Stanley ... - 4:38pm
5 days ago - By Contributor Wireless and Mobile News on December 17, 2009 12:04 PM. morgainstanley.jpg Morgan Stanley has release “The Mobile Internet Report.” ...www.wirelessandmobilenews.com/.../mobile_internet_could_surpass_desktop_says_morgan_stanley.html - Cached
Morgan Stanley sees bright future for mobile Web, credits Apple ...
6 days ago - In a nutshell, the mobile Internet is the future - and Morgan Stanley sees it ... (such as video / audio streaming) will stress carrier wireless networks. ...blogs.zdnet.com/BTL/?p=28637 - Cached
Morgan Stanley: Mobile web to overtake desktop in five years ...
5 days ago - Cox's Bye dishes on LTE, 700 MHz and bundling wireless ... Morgan Stanley's 424-page Mobile Internet Report contends the mobile web cycle is just beginning, ...www.fiercemobilecontent.com/.../morgan-stanley.../2009-12-17 - Cached
VoIP Watch: Morgan Stanley's Mobile Internet Report
2 days ago - The latest edition of the the annual Mobile Internet Report, from Morgan Stanley, is a must read if you make a living in mobile. ...andyabramson.blogs.com/.../morgan-stanleys-mobile-internet-report.html - Cached
Mobile VoIP - Morgan Stanley Report Examines Impact of Mobile Internet
5 hours ago - Morgan Stanley's recently released 'Mobile Internet Report' is an extensive look at the impact of the swiftly ... TMCnet Industries Site. 4G Wireless/WiMAX ...mobile-voip.tmcnet.com/.../71488-morgan-stanley-report-examines-impact-mobile-internet.htm
Morgan Stanley Releases Mobile Internet Report - Cell Phone Digest

Value Migration

2009-10-31T18:43:00.000-07:00

Just for fun, the other day I was looking at the evolution of market caps for a number of well known Western companies over the past five years. It is interesting to note that when Apple cut its deal with ATT (lets say 2006, one year prior to launch), ATT was worth roughly 2.5x Apple, and could have easily bought 25% of Apple as part of the deal. Today, Apple is worth about 20% more than ATT, mostly because Apple has grown and ATT has remained flat. The broader point is that, during the period 1995 to 2005 there was substantial value creation in telco, for example the emergence of Vodafone, Nokia's surge in value, and so on. However, since around 2006/2007, many traditional telco operators and OEMs have seen almost no valuation increase or even substantial declines. On the other hand, a few players such as RIM, Apple and Amazon have seen notable increases in valuation over the past 4-5 years. I believe that this signifies the beginning of two fundamental trends:

Valuation may have peaked for Western telco operators and OEMs, as they have run out of EBITDA growth in their core markets, and have shown little aptitude for entering new markets. Those smart or lucky to have made bets in emerging markets (e.g. Telefonica, Nokia), may get somewhat of a reprieve, but for the most part this trend will be inexorable. Instead, wireless valuation growth will primarily come from non-traditional players, who understand how to create profitable marketplaces at the intersection of wireless and adjacent ecosystems. Although players like Apple, Amazon, Google will be prime beneficiaries, an ecosystem of followers will be ushered in by fundamental re-alignments in the wireless value chain.
In particular, we will see a shift in valuation from Europe to the US. Wireless was one of the areas in tech where until even 2008 Europe was viewed as substantially ahead of the US. The competition has shifted rapidly and dramatically to the US, and today what matters most are the advances in Apple's, RIMs, Palm or Google's OS. The wave of innovation hitting the US market in response to the new OS war is only beginning, and we can expect to see second and third order effects. For example, smartphone mania in the US, may have helped accelerate the decisions by both Verizon and ATT to accelerate LTE deployment, and the US companies will be ahead of Europe in deploying this new 4G standard. The availabilty of 4G together with the faster adoption of smartphones in the US, means that by 2011, Europe is likely to be 1-2 years behind the US. This is important because they will be "Internet-years" and thus in effect the Europeans will be a decade behind! As I am British, I am not saying this to gloat, but just in wonderment. How could the American's have stolen the lead in wireless!! What happened?

M-commerce, am late?

2009-10-13T03:12:00.000-07:00

So here I was, bravely suggesting that maybe 2010 would be the year of M-commerce, and a few recent articles suggest that I was wrong, the year of M-commerce is....2009!

Darn, this is the problem with these waiting games. You wait too long and you fall asleep and while you are snoozing, the prizes glides past you. See stories below

http://www.businessweek.com/technology/content/oct2009/tc20091011_278825.htm
http://www.itvoir.com/portal/news/News/Smartphones-drive-adoption-of-M-Commerce-5-794.asp

Jitterbug wins best app award

2009-10-10T07:24:00.000-07:00

This is pretty amazing! Jitterbug has just been awarded Best App by CTIA. This is in the midst of iPhone App Mania and the app is not even available for the iPhone but only for Jitterbug phone customers. Jitterbug is starting to make some real waves!

http://www.fiercewireless.com/press-releases/ctia-hot-holidays-award-winners-announced

M-commerce, where have you been?

2009-10-09T13:30:00.000-07:00

Do you remember all those years when we (those of us who cared) used to think, maybe this year will be the year of mobile data, and it wasn't. And then, suddenly one year it was, and the next year was even better, and then lo and behold, in 2009 the wireless data is closing on $40B ($19.4B for far in h1 2009). See story below

[......
U.S. MOBILE DATA REVENUES ROSE 31 PERCENT in the first half of 2009 compared to the previous year, according to trade group CTIA’s latest semi-annual industry survey. Data accounted for more than a quarter of all wireless service revenues, ringing up $19.4 billion in the first six months of the year. CTIA also says that 740 billion text messages went across U.S. operators’ networks in the timeframe, double the number from 2008, and that there were 276 million mobile subscribers in the US at the end of June. Source
The bottom line: Mobile data revenues continue to grow, and are a bright spot for mobile operators among sinking voice spending. It’s also notable that given the U.S. recession, mobile data spending grew so strongly.]

So what was the year for mobile data? - arguably it was 2009 in the US in the sense that this became the year that it really became relevant, and in fact started to really scare the operators as they projected the implications on network stress. However, the year where it became obvious that this was a real category was maybe 2006 or 2007, and the year where data began was more like 2002.

I believe that 2010 will be the first year where M-commerce will start to happen in the US, Canada and the UK (it already is a meaningful market in Japan and Korea). My prediction is that it will represent maybe 1% of all US e-commerce transactions in 2010 - so roughly $1.5B to $2.0B (am excluding iPhone app sales from the category), quickly jumping to 2% in 2011, 4% in 2012, 8% in 2013, and so on. Could the ramp-up be even faster? Probably yes, but even if not, this represents a US market that is going from say $1.5B to $3B to $6B to $12B, and would probably be heading towards the $50B mark around the mid-teens (by which time e-commerce could comfortably be a $250B plus business). This is worth considering.

The trigger of this shift is primarily the improvement of mobile computing devices - especially the advent of the smartphone, especially the iPhone. The triggers in Japan/Korea were somewhat different, and arguably the bar was much higher in the US given the higher prevalence of Internet-based commerce.

The winners in this space will be the winners in e-commerce - in the parlance of Christensen, this is not likely to be a disruptive innovation, ushering in a new wave of challengers to the e-commerce incumbents, but a sustaining innovation, that will benefit incumbents. The reason is that for the most part the e-commerce guys are fairly aggressive organizations, and they have already developed a lot of natural capabilities that can be easily extended into mobile.

One interesting question is where the locus of the action is going to be: will it be through an app or will it be through an optimized browser experience. A cursory look at some of the top 30 or so e-commerce players in the US would suggest that maybe 50% of them have some sort of iPhone App and 50% have some sort of optimized browser experience, and 25% have both. A review of the top 30 in the UK would suggest that maybe 5 have optimized the web and 1 or 2 have done an iPhone App. The benefits of the App is that it can convey a sense of richness and immediacy, whereas the browser can have a slightly higher latency. The problems of Apps are the classical ones: need to design and update versions for all platforms (at latest count, maybe 10 versions to cover most popular smartphones), potential for interApp interference, and interference of apps with basic phone functionality, limitations in the range of content and experiences, and so on. The benefits of the browser are that you can design the experience once and it will work on any device; that you can integrate nicely with the existing web-assets; that you can explore through hyperlinks the entire WWW, and so on. This debate was nicely captured in an exchange between Google and Getjar. I am betting for Google and browser to win, but that's just me

http://venturebeat.com/2009/07/20/apps-or-browser-getjar-vs-google-on-the-future-of-mobile-services/

One of the interesting implications is that in 2010 we will start to see some serious investments by e-commerce companies in gearing up for the M-commerce waves starting in 2011. I don't believe there will be high expectations for M-commerce dollars in 2010, but there will be positioning to grab M-commerce eyeballs to be converted into major dollars in 2011.

UK - is it about to become the most interesting wireless market in the West?

2009-10-04T06:01:00.000-07:00

[Apologies for the hiatus. After a summer doldrums burst of energy, September has been a very intense month for me in the real work arena, and I have abandoned by best intentions of regular postings.]

Through my various conversations with operators, OEMs and others in Europe and the US, it is increasingly clear that underlying any discussion of relevance lurks the iPhone somewhere in the background. It is like Voldemort in Harry Potter, he "who shall not be named" (Jobs, arghhh), is somehow embedded in many strategic decisions.

It has also been long apparent to me that the UK is one of the most interesting wireless markets in the world (I fully understand that much of the action in wireless has long left the pleasant shores of Europe and headed South to Africa, the Middle East, Latin America and Asia, but for purposes of this discussion I want to focus on the Western markets - mostly North America and Europe). The UK is interesting for three reasons: it is a highly competitive market (with 5 operators and several healthy MVNOs); it is the meeting point of four of the top global telecom groups (Vodafone, Telefonica, Orange/FT, Deutsche Telekom) with combined subscriber bases of close on 500M subs - and thus any innovation there has potentially vast reach; and it is the natural nexus with North American tech firms as they enter Europe.

So, with the announcement that the iPhone will be distributed by the 3 top operators in the UK by 2010 - O2 as incumbent iPhonian, Orange and Vodafone as new distributors - my view is that the UK's interestingness (is this a word?) will re-double. Although France already has broad iPhone availability, the French adoption of smartphones in general still lags, and the nature of the market is less competitive. So the UK becomes a great "beta-test" of the next phase in the iPhone's plan for world domination. With rumors that Verizon could carry an Apple product in 2010, we should also think as the UK as a test-case for the future of the US.

Some interesting questions:

(1) What will loss of exclusivity do? - O2 in the UK and ATT in the US have benefitted substantially in terms of market share from their affiliation with the iPhone. Will customers defect above the average as this device becomes available in alternative networks?

(2) How do you differentiate, when your OEM controls the bulk of the experience? - Operators have already been "dumb-piped" by the Blackberry, to the point that many enterprise customers claim that they don't really care what network they use as long as they carry BBs. There is a risk that consumers say the same with iPhone. Such commoditization means that industry margins will be pressured among operators, and Apple will gain more leverage over the industry as a whole (think about how value flowed in the computer industry towards Microsoft and Intel as an analogy). My view is that the natural "dumb-piping" trend that operators have dreaded and fought against, has been accelerated by a factor of 3-5 years with the advent of the iPhone and its brethren - Android, Palm, etc - and that the house is starting to catch fire.

(3) Start fighting for your life - just like most of the traditional OEMs are now cognizant that they are fighting for their lives against the new smartphone challengers, operators need to recognize that it is now time to "put away childish games" and get serious. They face big challenges in this, because for the most part the past 10-15 years have been times of plenty, and they have allowed themselves to become bureaucratic, unimaginative, and painfully slow. Per prior posts, one obvious example: the mobile internet, under the control of operators for the past 9-10 years, has been largely unattended by this group, who have focused on quick monetization ("selling ringtones") and failed to build a compelling set of user-friendly services in this channel. The likes of Apple and Google are stepping in to fill this void. I see little compelling evidence of operators that really understand what needs to be done to fight back and have a decisive approach.

Where can operators fight back?:

(1) Win through superior consumer experience - even as the experience on a smartphone, and specifically the iPhone, is in many ways better than on previous generations on phones, there is still a long way to go relative to the optimum. The biggest gap in my mind is "utility": consumers are after all ordinary people that need to get through the day and get stuff done. Here is a simple test: go to your phone and try to do something fairly trivial, like look up train times and buy a ticket - if you are in the UK or US, this is bloody difficult. How about looking up your electric bill or even your mobile bill? This should not be that hard, but in fact usually is a painful or impossible experience. Meanwhile, Apple has coined a term "there is an App for it", and has enlisted an army of developers to creates useful experiences (as well as a lot of entertainment). If the only place consumers can go to get their stuff done is the iPhone, then the game for the operators as a value-added company is truly over and they should perhaps focus on becoming very good wholesellers.

(2) Smart use of information - as discussed in prior blogs, operators have at their fingertips vast amounts of contextual information, that they can use to deliver highly valuable services to their customers. However, their ability to use this information is about circa 1995 for the retail or credit card industry.

(3) Value-chain solutions - Apple, Google, Amazon have all understood that the wireless ecosystem is the new centerpoint of the digital world, and have found a way to break in to the ecosystem and re-write the rules from the inside. Operators have a similar opportunity to break into adjacent spaces, such as gaming, entertainment, healthcare. Although many senior executives recognize the opportunity and the need, they lack the clarity of objectives and focus to make decisive pushes. This is complex because it requires top-down leadership vs. the vast telco bureaucracy; it requires cross-functional mindsets vs. the silo-based mentality; and it requires smart insight into the economics of these new spaces.

Mobile Tectonics in Action: Nav Market Disruption

2009-09-03T04:45:00.000-07:00

No prizes for guessing that this was going to happen, but the Nav industry is heading into the ditch. We all love to see accidents play out in front of our eyes (I confess my devotion to America's Funniest Home Videos), and we now have a front seat for the upcoming clash between the stand-alone nav guys (TomTom, Garmin), and the behemothian wireless industry. This has many of the elements of the the PDA war (sorry Palm).

The central theme, as indicated in the source below, is that cell-phones with GPS will increasingly swamp standalone GPS'. This will have two first order effects: it will cannibalize standalone growth, and it will create a higher scale platform (mobile) that will gain a higher share of the coolest software and innovation.

Of course, the standalone guys will not stand still: for example, TomTom is already building in connectivity into its own devices (strategy 1); building apps/solutions to go into cell phones -notably its iPhone app/service (strategy 2); pushing the envelope into next-gen navigation with smarter and more predictive software (strategy 3).

The cell-phone industry does not have it all its way: for example, the benefit of having two devices is that when you are in the car talking on the phone (which we know you shouldn't), you can also be following a nav's directions. This is much harder to do if both functions are built into one device, especially since the ability to seamlessly multitask is not quite there.

However, the cell-phone has some overwelming factors in its favor:

Massive scale on which to develop applications and OSs to enable ever smarter nav tricks
Global distribution via the operator ecosystem
Built-in connectivity, allowing for information updating and adding of more contextual data
Business-model flexibility, which might mean that nav might be subsidized as part of a subscription or as part of an ad-supported model
Pairing GPS with triangulation enhances the accuracy of the core technology.
Operator's cell-phone and tower network can provide highly accurate primary traffic data

So, in this context, what are potential strategies for a stand-alone player? Clearly the various things someone like TomTom is doing all make sense, but I would add a couple of other ideas.

Begin with some first principles around what Nav is all about:

Efficiency. The fundamental value of navigation is to make travel more efficient by increasing accuracy by optimizing travel (and reducing rework, stops, etc). Lets posit that Nav Wave 1 has added in the order of 5% efficiency to those who have adopted it. This is a major benefit to the global economy and a high pay-off to those individuals or businesses who have embraced it - in terms of time, gas, wear and tear on the car and so on. Initial indications would suggest that Nav Wave 2 can drive an incremental 5% efficiency benefit, by optimizing based on actuals rather than averages. Those who use Nav Wave 1 already do some such optimization (when you avoid a certain route at certain times of day). So, people starting at zero may have a potential 10% benefit.
Urbanization. There is a seemingly inexorable process of urbanization (and consequent sub-urbanization), which suggests that the costs of searching and getting to the right destination are only going up for more people.
Car use growth. The developing world is seeking to catch-up fast with the developed world on car ownership, increasing the population of potential lost (in the road) souls.
Road construction. One area where there is clear consensus is on the need to build more roads with all this infrastructure money.
Business drive for efficiency. Businesses are relentlessly looking to extract more value from their assets. This means for example, that they would like to get more employees out in front of customers making more sales, but they need to maximize the efficiency of those employees.

Thinking about these themes, it makes sense why Nokia made one its largest ever investments to buy itself a presence in the Navigation world. Given its leading position in many of the emerging world markets, it is extremely well placed to take a leading role.

Some implications for incumbents in the Nav industry:

(1) Need to own Nav 2.0

(2) Need to figure out a business model to effectively target the growing urban global middle classes

(3) Need to figure out a compelling business oriented strategy

http://blogs.barrons.com/techtraderdaily/2009/09/01/will-smart-phones-crush-the-stand-alone-gps-market/

By Eric Savitz
The days of the stand-alone portable navigation device market are numbered.
By 2014, according to research firm iSuppli, the market for PNDs will be eclipsed by GPS-equipped smart phones. In 2009, the firm says, there will be 114 million PNDs in use, compared to 57.8 million smart phones. But by 2014, the numbers will flip: 305 million smart phones will be in use, versus 128 million PNDs, according to a forecast by iSuppli.
In a statement, iSuppli analyst Danny Kim notes that smart phones were not previously seen as a threat to the PND market due to poor phone battery life, unclear pricing structure and inferior interface design. But he says that as the smart-phone market evolves, those issues are being resolved. New smart phones, he says, offer better GPS integration, better usability, larger screens, built-in connectivity - and new GPS-enabled applications. (He counts 8 GPS applications for the Apple (AAPL) iPhone alone.) By 2011, Kim believes, almost every smart phone will include GPS functionality.
And here’s a sobering thought for investors in the space: iSuppliu thinks that from 2009 to 2013, the number of TomTom (TOM2.AS) and Garmin (GRMN) PNDs in use is not likely to change significantly. “The year 2009 marks the dividing line when sales expansion for the PND slows as the product moves from the growth phase to the maturity stage of its life cycle,” iSuppli contends.

Impact of Highway System on Productivity

2009-09-01T19:35:00.000-07:00

Why is a blog on mobile discussing the US Highway System and its impact on productivity? Because one of the key contentions of "MobileTectonics" is that there are a discrete number of infrastructure platforms that have driven a substantial amount of US productivity over the past century - the electric grid, the railway network, the highway network, the POTS telecom network, the Internet. This attached document goes into some depth (based on a rich base of academic work) to show that the impact of the Highway system was in the range of $2-3 Trillion dollars of measured increased production over 40 years, a material share of productivitiy growth during the Post-War period, and a high return on the invested capital (in this case invested by the government). In addition, there is likely 2-3x that amount that has not been captured.

http://www.publicpurpose.com/freeway1.htm

If we think about some key features of American life that we take for granted but are the direct result of the Highway system (and cheap gas), they include: the emergence of out-of-city big box and mall centers; the massive growth of suburbia and exurbia; the adoption of just-in-time logistics; substantial reductions in deaths and injuries from driving; increase in flexibility and mobility of the US labor force; massive construction boom in cheap land that was previously out of commuting range, and so on and so forth. One can debate whether each of these developments is unambiguously positive, but fundamentally all these changes are driven by peoples' choices, so we can probably assume that they chose what they felt was best for them (if you detect a hint of Ayn Rand, you might be right). In any case, the interesting thing is how much of the American way of life was impacted by this investment.

It is also true that back in the 1950s when the Highway System was being built, very few people predicted the transformation that would ensue. Nevertheless, the changes were in many ways predictable - for example, the increase in speed leads to extending the commutable range and thus the expansion of suburbs; similarly, it enables the emergence of big box stores that are able to serve large catchment areas.

The question I would thus postulate is: can the wireless/broadband infrastructure, which has pretty recently become available, drive a comparable revolution, that when we look back 5, 10, 20 years from now we will find somewhat incredible? What are they key inevitable drivers of these shifts? How do we think these will materialize?

Mobile/Publishing - Kindle

2009-09-01T15:48:00.000-07:00

The emerging e-book revolution is a great example of "mobile tectonics". The attached blog has some interesting perspectives on how this space will evolve. I will return to this topic with more depth in the future

http://jmichaeli.wordpress.com/2009/08/22/kindle-and-the-future-of-bookstores/

Mobile Customer Engagement (III)

2009-08-30T06:53:00.000-07:00

DICE Vision 2012 (please excuse my straying into semi-fiction. Also, since most of what I describe is available I will place it in 2012, not 2015)

Andy Smith was running late for his flight. As he walked to the car, he activated the browser on his Moto Android and quickly checked-in to his flight with 3 key strokes. When a text with his barcode came back he relaxed - that problem at least was taken care of. Andy had just received an automated notification that his elderly mother had fallen down, triggered by an accelerometer built into a pendant she always wore, and connected to the wireless network. The speakerphone built in to the pendant had turned on, setting up an immediate connection with the emergency response team, and also calling him. He had calmed her down, and she was now heading to the hospital. Although she might have fractured a hip, she was going to be alright.

Andy docked his Android into nav mode and punched in the airport destination. The TomTom app gave him the optimal routing. This was so cool: the routing was based on an algorithm that looked at historical traffic on the route, fed by data from a combination of probes and cell-phone based data, adapted to projected weather events, and he could not believe he ever used the 1st gen nav. He currently was scheduled to get there with 30mts to spare - as long as he could get parked fast, he might just be able to make it on the plane.

Darn! Traffic ahead. "Tom", his friendly nav assistant, automatically re-routed him but he was now down to a 23mt window, and the main parking lot was full. He could upgrade on the fly to premium parking (why $40 a day was not premium, he was not sure), but what was the point since he figured he had lost the flight. Shifting gears (mentally, since he was in an automatic car), he connected his travel agent "Bev". Bev was clearly getting twitchy, since her algorithms suggested that he was going to miss the flight, and she was already mapping out his alternatives. In voice mode, she piped up available options for him. Andy chose the first available - he would still see his mother tonight, and it was probably better that she had some time in the hospital before he visited.

With time to spare, he relaxed. The local radio was uninspiring so he surreptitiously switched on his Android podcaster hoping no cop was looking (this was not voice activated, what a pain!). He listened to some NPR for a while, and when it got too liberal, he shifted to a bit of Talk Radio - a bit extreme but perhaps more satisfying for his mood. [....]

After parking his car, Andy walked into the terminal and straight into security, where they scanned the boarding pass in his cell. He still needed to show ID, though they were talking about putting ID on his phone (not sure about that, he thought). Once in the airport, the Android switched into the WiFi network, and all of his pending big files automatically uploaded (this option was cheaper on his mobile data account than truly unlimited).

His carrier was experimenting with Near Field Communications at the airport, and he thought he would try out his mobile-wallet. He bought a triple-vente macchiato and paid with his phone (wow this is cool!). He tried it out in the bookstore (neat, I could get in trouble, this is addictive).

In the Admiral's Club (when would they get the message that they were competing with the likes of Starbucks and they should upgrade their coffee machines?) he sat down to wait. He opened "Bev" and did some planning for next week's travel. "Bev" gave him a range of available options (it was funny thinking that he used to get on the phone with a real assistant to figure out what now seemed very simple to do on the cell). Since these were tickets above $1000, he authenticated with his unique voice print (pretty neat - to set it up you spoke for about 10 seconds, and then it could authenticate you with the precision of DNA in about 4 seconds in any language or even if you spoke gibberish). He said supercalifragilisticexpialidotious, and that seemed to do the trick.

Since he had time to kill, Andy did a bit of "house-keeping" (funny that he no longer did this at home). Through Android, he checked through his cable, cell, broadband, oil, gas and water bills to make sure everything was ok. He noticed that his eldest daughter was texting a lot (that new boyfriend!), and he decided to upgrade her to unlimited texting (and negotiate a slight reduction in her allowance - yeah like that was going to work). His Mum was on Jitterbug, and he noticed that she was starting to text a lot as well, maybe there was a secret conspiracy between his daughter and mom he should know about! [...]

Late that night, having visited Mom at hospital and made sure that everything was ok, he settled in to his hotel room. He was tired, and was not in the mood for anything much. He had downloaded some movies and games to his Android (it was amazing how much these little devices could store!). He connected the cell to his TV with some TV-out cables he always carried with him. He turned the TV on, paired the cell with his Zeemote, and began to rummage through the entertainment section of his cell while lying down on the bed. This was great - instead of having to work through the hotel's choices, he could pick among his own stuff or even use the mobile-browser, but all projected onto the big screen. He was sure the hotel was not happy, but they would figure out their own economics. He played a couple of games with his Zeemote controller, and then scrolled for a downloaded "Two and a half men". He barely made it to the end..... {zzzz}

Note: All of these technologies are fully functional, though not all have been implemented in the mode that I describe.

Mobile Customer Engagement (II)

2009-08-29T14:59:00.000-07:00

In my last discussion on the subject of Mobile Customer Engagement (I prefer Device-Driven Integrated Customer Engagement or DICE since it is a nicer acronym), I laid out some basic themes, but in the next two posts I want to push the envelope in two ways - the first is to think about what is the fundamental role of the mobile in "customer engagement" (in this post), the second is to visualize what the world might look like in 2015 (in my next post).

Fundamental role of Mobile in Customer Engagement
Customer engagement has evolved from a highly personalized process (at-home, in-store, call center) towards a de-personalized process (IVR, web, SMS) [which actually feels like customer disengagement]. The theory (as pitched by vendors of each new process or technology) was that the (fill-the-blank) technology would replace existing high cost methods and thus dramatically cut legacy costs while serving the customer's needs. The reality has been that each new method has generally failed to eliminate the volume of legacy transactions, and merely added new layers of cost. Confronted with this picture, the vendors and the buyers have rationalized that with all that increased contact, the customer must be feeling much happier, though few have ventured into really trying to prove this point. In fact, the customer is in many cases feeling less happy, since they now need to work harder to solve their problems as they seek to navigate the roadblocks created by their vendors. Meanwhile, companies are desperately trying to reach customers (not to deal with their problems, but to sell them more stuff), and are often overwhelming them with mail, email and SMS offers.

So net/net: customers are increasingly disengaged, the costs of serving them are increasing and the yield from new promotions is decreasing.

In this context, what is the role of the mobile phone? Will it be yet another supplementary technology or does it have the opportunity to fundamentally redefine the terms of engagement?

I would argue that the mobile phone will do the later, on the basis of the following logic:

The mobile phone is already becoming the primary vehicle for customer engagement. In the US, according to Nuance, already 1/3 of customer care calls are originated by mobile phone (using the voice channel), and this is projected to rise to 50%. This means that very high cost people (call center operators) and high cost network capacity are being utilized when much lower cost means are available in the same device that is being used today
The mobile phone is a multi-modal device, with built-in capabilities to do virtually any mode of customer engagement (text, email, IM, video call, web, on-device app), and uniquely positioned to enable seamless connection - for example an SMS can deliver either a web-link or an app, or a web-session can connect to an SMS or a live call). No other device can get even close to this - the traditional home phone has no service other than voice, the computer does not reliably link with voice. This is important because one major source of duplication is the lack of connectivity in all other channels.
The mobile phone has the ability to provide important contextual information - such as location (via GPS/triangulation), movement (via an accelerometer), recent phone activities (via specialized agents), and so on. This contextual information can be very critical in helping companies anticipate or respond to customer needs much better than ever before. Some extreme examples - the built in accelerometer in OnStar and some emerging phone-based apps can trigger a call to an emergency center when a car-crash or a fall happens.
The mobile-phone is available on a 24/7 basis, compared to other enabling devices that are less available, such as the phone or the computer. It also is closely identified with an individual, rather than as a shared device.
When companies have built good customer-engagement experiences on the mobile phone - be they SMS, mobile web or App-based, the adoption rates have been either good or extraordinary (often in the range of 25-40% adoption). In other words, to use the awful VC phrase: "the dogs will eat the dog-food". In fact every data point that I have seen, suggests that customers are delighted to be able to use their mobile phone for customer-engagement (or as they think about it "to solve their daily problems").
Initial observations suggest that mobile-engagement can eliminate in the order of 20-30% of customer-care calls, and can also displace substantial portions of IVR and web-based engagement.

Despite this logic, the reality is that maybe 5% of the Global 1000 companies are effectively harnessing the mobile phone as a channel for customer engagement, and therefore reaping the tremendous cost reduction and revenue growth benefits (as discussed in a previous posting, even the mobile operators are generally very poor in how they use this channel).

What is standing in the way?

Caution. Having been promised such benefits many times before, corporations are understandably cautious and sceptical about jumping on the latest technology
Confusion. It is difficult to determine what is the right technology choice, and how to re-engineer existing company processes to take advantage of mobile phones. For example, do I bet on something simple like SMS, something a bit richer like mobile web, or something really cool but not used by all my customers such as an iPhone app?
Time. In fact, there is a tremendous amount of testing and experimentation taking place. For example, airlines are aggressively testing and rolling out mobile-engagement - typically focusing on the mobile web; banks have also been quite aggressive in the past few years; mobile operators have been very active with SMS and are now migrating to more sophisticated forms. So expect to see some verticals make progress.
Complexity. Just like the web forced companies to rethink and retool some critical processes, Global 1000 firms will face a comparable challenge with mobile. Given that large corporations tend to develop silos' it is a complex task for them to accomplish such re-tooling.

Nevertheless, as today's smartphone becomes the standard for mobile-based interaction, with larger screens, better input mechanisms and massive processing capabilities, those corporations who ignore where the consumer is heading will find themselves eventually falling behind. In my next posting I will do my best to envision how the customer experience on a mobile could be in this rapidly emerging reality

Jitterbug and Verizon

2009-08-28T04:23:00.001-07:00

Yesterday it was announced that Jitterbug had partnered up with Verizon. Jitterbug is a cause very close to my heart, having believed for many years that there was a great opportunity to be had by simplifying the user experience, and been fortunate enough to have become involved as in investor and Board member in a company whose goal is simplification, in particular targeted at seniors.

I have attached a couple of press mentions:

http://gadgetwise.blogs.nytimes.com/2009/08/27/jitterbug-says-can-you-hear-me-now/
http://www.fiercewireless.com/story/jitterbug-jumps-verizons-network-embargoed/2009-08-26

Mobile Customer Engagement

2009-08-24T10:43:00.000-07:00

Any business with consumer relationships - banks, airlines, retailers, media companies, utilities - develops over time an "engagement strategy". It can be defined in a number of ways:

1. In-bound vs. out-bound.

In-bound ("pull") is when a current or prospective consumer approaches the enterprise with a request for information, a desire to purchase, an after-sale query or a desire to renew/extend the commercial relationship. For example, someone walks in the door of a store, or accesses the web-site, or calls an 800 number.
Out-bound ("push") is when the enterprise reaches out to a current or what it suspects is a prospective customer, and conveys information, or an offer to sales or a renewal/extension of the commercial relationship

2. Mode of communication

Home. In the early days of commerce, there is a lot of action at the home, and this is still a major channel in developing economies, and vestigially so in Western economies (e.g. Avon ladies). It is more a "push" than a "pull", with the sales person relying on their energy and power of persuasion to create and fulfil a consumer need.
Store. As societies advance, and demand for a category of products is more mature, it makes sense for it to move to a store. Initially, it is small stores close to the customer, but eventually it evolves to large stores that aggregate more customers and higher ticket purchases. This is a "pull" phenomenon, though supported with "push" activities to drive traffic.
Mail. Mail offers an alternative engagement approach, and was early and famously used by Sears to build its business prior to its store strategy. Today it is predominantly a "push" strategy, especially in the US, as vendors compete for dwingling attention and response in this channel.
TV/Radio. Broadcasting is fundamentally "push" technology, seeking to convey a mass-market message to the targeted audience, and trigger a certain behavior (e.g. go to the store and buy x, pick up the phone and order y).
Call center. Phone-based engagement exploded in the US during the '80s and '90s, both in "pull" and "push" modalities. People learned to call 800 numbers to make transactions, or query their bills; and an army of telemarketers learned to dial for dollars. "Push" is probably on the wane as its efficiency declines, "pull" is growing to the chagrin of those who foot the bills, as people seek more answers to their problems (this is especially a problem with the mobile industry as it hybridizes with the computer industry).
IVR. Interactive Voice Response has become pervasive, especially as a way to filter or even block "pull" calls. Increasing intelligence allows IVR to complete more and more tasks, however, in many cases it does not eliminate the reason to call so it may end up merely deferring the inevitable high-cost contact.
Internet. The web is primarily a "pull" channel, and has become a highly effective way to complete sales and manage queries. However, it has failed to eliminate higher cost channels such as the store and the call-center and in some cases may have actually increased reasons to call by providing greater visibility of potential issues to the customer.
E-mail/IM. E-mail is mostly a "push" approach, famously used by spammers to reach the unawares. The lack of immediacy has limited some of its functionality for true customer engagement. Web-based IM is a more intimate, immediate and effective means of engaging with the tech-savvy customer.
Mobile SMS. SMS is mostly a "push" mechanism, through through initiatives such as short-codes it is also an effective "pull" system. It has the benefit of being pervasive - it can reach up to 4B individuals globally - but it is somewhat limited in richness
Mobile Apps. Apps have become trendy and can help with some customer engagement, but because of device diversity they lack the mass-market appeal of almost every other technology.
Mobile Web. Mobile web is emerging as a major new technology platform for customer engagement. It is fundamentally a "pull" technology, although it can be complemented with SMS or Wap-push for "push" type messaging. If designed effectively, it can become a very powerful technology: the ability of the phone to multi-task (for example, go from an SMS push, to a mobile-web session, to a live call within one customer contact); and the personal and pervasive connection with the end-user enable it to substitute or complement all the above technologies.

3. Department. A third dimension is what department engages with the customer. It could be billing, customer care, bad debt, loyalty, marketing, and so on and so forth.

4. The Problem

So with this as preamble, what is the problem?

Explosion in number and variety of contacts. Because the means of customer engagement have increased dramatically, the total number of contacts has gone up substantially, and the types of ways a customer interacts have diversified.
Eroding yield. As a result, the yield of any one contact in terms of a closed sale or a resolved problem has gone down.
Increasing cost. In general, the costs of customer engagement are trending upwards, because new technologies are often not resolving the underlying problems.
Incoherence. Although any given department may be optimizing their goals in customer engagement, the overall picture is looking increasingly incoherent. The customer may find that it is hard to get anything done as they get shunted from department to department or try to resolve the problem across different media; meanwhile, the organization become increasingly frustrated as the jack-in-the-box problem keeps popping up after it had become resolved.

Re-thinking customer engagement - some rules

In-bound over out-bound. Customers like to engage on their terms and when it is most convenient. That is why spam is so hated. So one key rule is to focus on in-bound or "pull" and be very judicious with "push" (and critically to gain permission for future push - some people actually like to get opportunities pushed at them).
Any-time/any-where. Since customers want to engage on their terms, we should want to make it easy for them to do it at any time (not when they have a telephone, when they are in a store, when they have a lap-top). Since the only anywhere device is the mobile phone, this means that we should ensure that the mobile-phone engagement experience is as good as it can be (subject to the existing limitations on viewability - today known as screen size)
Fit for purpose and for occasion. Customers priorities vary at any point in time, and the more we can be context and situation-aware, and ensure that we adapt to their priorities the better we can serve them.
Integrated. We should ensure that the left foot knows what the right foot is doing. This means that we should build knowledge of other customer interactions across any channel (theoretically this is what the CRM revolution ushered in), and also that we ensure that the actions across all departments are in-synch.

Interested in any suggestions or responses to these thoughts.

Core investment theses (IV) - De-verticalization

2009-08-21T04:53:00.000-07:00

The fourth and last thesis is the least developed, and one where we are probably less predisposed to play in, because it tends to attract a lot of VC interest with greater relevant expertise and because it can be very capital intensive.

The key argument is that as industries emerge they tend to do so in a vertically integrated fashion and as they mature they tend to de-verticalize. For example, when the beer industry was going through its growth phase, many brewers owned glass-makers because they needed to guarantee supply of glass bottles, and they were also one of the major buyers of glass; however, once the industry matured, they spun out the glass companies since they were no longer core and they depressed their returns on capital.

Closer to the mobile tectonics world, the computer industry grew up highly vertically integrated - notably IBM controlled a vast proportion of that value chain. In some measure, the past 30 years of computer industry innovation can be seen as a gradual de-verticalization of IBM, leading to the emergence of many sub-industries, and emergence of powerful new corporations (Microsoft, Dell, Intel, etc).

Similarly, the mobile industry was highly vertically integrated for many years. The big OEMs did a lot of their work in-house, and the operators also did everything (network, customer care, IT, stores, etc). During periods of high growth and high margins, such as the industry enjoyed for many years, this was acceptable. People like their empires and don't like to let go, and without external pressure they seldom do.

However, as growth in the West stalls or even heads into reverse, and margins also decline, the pressure for de-verticalization will become ever more intense. In addition, the entry of players from the computing world who have already been down this path, and at a time when telephony and computing are rapidly converging, will cause this trend to accelerate.

Examples of de-verticalization abound: from the recent decision of Sprint to spin-off its network operations to Ericsson (a forward looking move in the US, though already old hat in India); through to Motorola's decision to junk its traditional handet OS in favor of 3rd party OS's such as Android (again following from earlier such moves at HTC and others); the emergence of MVNOs (the "virtual" should give us a hint) is another example.

This phenomenon is by no means unidirectional nor inevitable. iPhone is actually driving the process of de-verticalization into reverse, since in that ecosystem, the vendor controls much more of the end-to-end experience than a traditional telecom operator would. Similarly, some operators who had outsourced some activities are realizing that they lost critical control and are bringing them closer to home. However, any industrial theorist who knows their Porter will tell you that the net trend towards de-verticalization is inevitable.

The emergence of 3rd party software platforms - be they OSs such as Windows Mobile or Android, or Appstores/run-time environments such as iTunes, BREW or some emerging efforts to create NAAS (Network as a service) by exposing core applications into a standardized format, will become powerful enablers of the de-verticalization process.

By creating mass-market standards they will encourage hardware manufacturers to focus their innovation spending on the machine side now that they no longer need to each build their OS'. This could be particularly powerful for many of the Asian OEMs, who have traditionally been much better at hardware than at software. So we can see that the Android/WinMo set-up could set the stage for Samsung, LG, HTC, ZTE, Huawei to further gain share from other OEMs.
The emergence of standards has also famously re-energized the developer community. BREW did so for the CDMA world, through as CDMA is becoming marginalized it lacks the platform for growth. iPhone's development platform has clearly set the app development world on fire. Outside of iPhone, one critical issue is whether RIM, Android and WinMo are truly standards - if they are adapted to each operator or OEM's needs, they may create so many variants that they bring us back to the bad old days of multiple Java builds
Software-defined radio, such as Vanu Inc, could also be interesting, by enabling the replacement of dedicated network hardware by a combination of software platforms and standardized hardware.

As mentioned, we have not even begun to articulate how we will play in this space. There are many big boys with limitless pockets playing in these games. However, we think that as this trend advances it will enable the emergence of some very exciting niches that can lead to VC level returns.

Core investment theses (III) - Analytics

2009-08-19T06:13:00.000-07:00

Our third thesis is even greener than the second thesis (I began with the strongest and richest and moved down, as perhaps you can tell, and by green I am not highlighting our eco-friendliness but rather our lack of maturation). It begins with several fundamental ideas:

The mobile computing platform generates one or two orders of magnitude more information than the next platform (the Internet). This is because the mobile device contains a large number of built-in machines, because it is active a much higher proportion of time than say a laptop, and because it can access much more contextual information than the laptop (for example, where the device or the device user happens to be located).
The information that is being generated has the potential to be incredibly valuable, given the density and ubiquity of the information that is being generated, the ability to match this information to an individual (much more so that with a laptop), and the ability to deliver solutions of value at the point of maximum utility
However, in general the amount of information actually used is extremely low compared to other industries including the Internet (e.g. Google), or financial services (e.g. Capital One) or even the gambling industry (e.g. Harrahs). This is primarily because the bulk of the information generated resides in the bowels of mobile operators, organizations that have historically been managed primarily as acquisition engines, and where the prevailing wisdom was "spray and pray". Nothing wrong with this for the past 15 years, where you had an industry that was growing rapidly. However, it takes time to realign assets and capabilities and so today for the most part this rich data is being wasted.
We should not minimize other issues: often incompatible information systems; privacy concerns; the willingness of users to engage via the mobile phone given other jobs they are trying to get done through this device, and so on.

With this as set-up, our perspective is that over the next 2-5 years there will be a number of opportunities to build venture-backed businesses that smartly leverage the available information into delivering better business solutions for players across the entire system: operators, suppliers to operators, content companies, enterprises and ultimately end-users themselves. We have been fortunate to become an investor in Carrier IQ, a company that is a pioneer in this space, primarily focusing on helping operators and their partners solve really big problems - how to optimize their capacity plans; how to ensure that handset can be launched with a minimum number of bugs; how to ensure that applications are usable and used (and do not interfere with other important stuff like making phone calls). We are also actively looking at other investment ideas in this space, and in some cases we are steering our portfolio companies to embed more and more analytics into their core business. Ultimately, we are increasingly seeing that "analytics" will be an important or central component of any investment we make.

Again, this is raw and I am out of time. In future blogs I shall delve deeper into this field but hopefully this is a good start.

Core investment theses (II) - Disruption

2009-08-18T04:06:00.000-07:00

Our second core investment thesis is around "disruption". The key question is what happens when the $1 Trillion +/- global wireless ecosystem begins to overlap with other ecosystems (or industries). Our argument is that the clash of ecosystems will generate some very interesting results. If you believe that wireless is a pervasive technology similar to electricity or the Internet, you can assume that disruption of various sorts will be happening for a long time.

Following on this thesis, we can already observe what has been happening when wireless meets the PDA business or the Music business.

For example, the PDA was a nice little market dominated by Palm (and where notably Apple had failed). It hybridized with wireless to become the smartphone space, in the process wiping out Palm (notwithstanding its latest attempt to return); propelling RIM into stardom, and eventually providing one element of Apple's own mobile offering. The hybrid smartphone sector is already 10x the size of the standalone PDA, and will clearly be setting the norms for a significant part of the mobile industry.

Another example is Music. This was a digital market widely understood to be in decline due to pressure from online downloads. It was also clear that mobile was going to become a major play in Music, all the way from vast heaps on ringtones (priced at a premium to full online tracks), through to the inevitable incorporation of mp3 players and storage into cell-phones. You could argue that Sony's venture with Ericsson to create SonyEricsson, was in part a response to these pressures. Another player that felt pressure was Apple (back when it was not in the phone business). Had they failed to ACT, they would by now be facing a dwindling role in the music business as the mobile ecosystem offered for free what they were charging for with their iPod. Apple's entry into the phone business can be seen as much a defensive as an offensive move.

What these two examples illustrate are the following:

It is not pre-determined who will win and who will lose when this ecosystem clash happens. If we roll back the tape to 2000, Palm at the time seems to be in a perfectly good position to have become a major player in the smartphone game, but perhaps it made some mistakes in not understanding what it needed to do or failing to execute well.

It is not about hardware or software or apps but about the system and the customer experience. The PDA/wireless hybridization clearly has hardware components but software/content/apps has clearly been an important part of the success of RIM and Apple. Similarly, the Music/Wireless story combines various elements.

Wireless Incumbents are not necessarily well positioned to benefit. Again, looking forward from 2000 and knowing what we now know, we might think that there are some great growth opportunities for incumbent operators and OEMs. However, in 2009, it is at the very least a mixed bag. Some OEMs have probably benefited from disruption - say Samsung; maybe some of the operators who have aligned with iPhone have benefited. But for example, RIM seems to mostly benefit itself and actually commodify the status of incumbent operators by shifting the purchase decision to the handset/software combination and away from the network.
The value swings are pretty big. As with any disruption, the cost of missing the game or missplaying it can be pretty substantial. At the point of disruption the rules of the game may change completely and those that do not understand can be left on the sidelines.

So with all of this as preamble, how does this impact our investment thinking?. I would say, honestly, that we are still trying to figure it out. We have made some investments that clearly are bets on some sort of disruption. For example, Zeemote is ultimately a bet on what will happen when the $50B global gaming ecosystem bumps into wireless (since this is the subject of another blog I will not elaborate). We have also made bets around wireless + gambling (BettyMovil in Spain), and have looked in depth at wireless + navigation (wave 2 will be premised on smart, predictive navigation); wireless + video (still mulling that one)' wireless + health (us and a million other groups), and so on. Since we are a fairly small fund, we are very careful in not going into situations where we cannot stay all the way through.

Some of the rules that we are developing as we wade into this space are:

Disruption is ultimately driven by highly deterministic laws - so for example, as Moore's law continues to grind away, it becomes increasingly relevant to wireless because it enables the expansion of processing capability, graphics and storage on cell-phones, and the progressive improvement in the size (smallness) and quality of the machines built into the phone.
Just because something is logical does not mean its going to happen now, though if you have understood the core dynamics it will eventually happen.
Any disruptive idea is going to require highly lateral and cross-functional thinking, something that is outside of the scope of most incumbents and manager-led organizations. It is not an accident that two of the boldest moves in disruption were led by Jobs and Bezos, who have the ability to drive a vision all the way from the top. Back to my segmentation blog - that bold play was also driven from the top at GM by Sloan.
Ultimately, it is all about delivering basic consumer needs in a better way (that is what all business is about). So, for example why has mobile + photography not become an interesting play: because the camera-phone has not really changed customer utility except in a few niche areas. There are some interesting uses - mblogging, mobile-camera scanning, and so on, but we are not there yet. However, by 2010 it is expected that the quality of camera-phones will equal that of Digital Cameras; some of the transfer issues will have been worked out (e.g. models such as EyeFi); and some of the end-use models may be more mature so perhaps this hybrid space will be ready for take off.

As indicated, the story here is hardly written, so would very much welcome a spirited dialog and debate.

Self-serving nature of Blog

2009-08-17T18:08:00.000-07:00

One of my very small but exponentially growing army of readers (it's wonderful to begin at zero) pointed out that in some of my comments I might be perceived as shilling for some of my portfolio companies. I suggested to said person that he should challenge me out in the open, and that I would love to enter into debate. It is definitely true that I might shill for some of my companies. It makes me sleep better at night if I can justify to myself that I have made some smart moves. On the other hand, every investment seeks to embody some of the principles that I am articulating, so they are somewhat endogenous to the blog. I would hope to learn from others that take opposing or modifying perspectives, in order to become a better investor

Core investment theses - Segmentation

2009-08-17T05:18:00.000-07:00

In order to develop an effective funnel with which to assess wireless investment opportunities, we came up with four fundamental investment theses at Nauta Capital, the venture firm that I am a partner of. Each represents a big idea that should become the basis of early/mid or late stage investment. I will discuss the first today:

Segmentation

Every consumer industry reaches maturation at some point, and as it does, it tends to shift from offering a basic service that the mainstream wants towards offering ever more targeted services. Think P&G emerging from the early soap industry in Cincinnati, or the explosion of specialty retail in the US, or the artful segmentation strategy of Alfred P Sloan at GM in the 50s. The wireless sector is clearly maturing globally, but it is largely still un-segmented. I believe that over the next 10-20 years we shall see some waves of segment offerings. I would argue that to date most of the segmentation effort - read RIM, iPhone, has come from the outside. The MVNO craze in the US was an early clumsy effort at segmentation that did not work, but now you are seeing the beginnings of a 2nd, smarter wave.

One of our investments, Jitterbug, is a great example of effective segmentation. It is targeting the mobility needs of seniors. Believe it or not, many VCs told the company that they loved the metrics but this segment was not very sexy! While saying you will "segment" rolls easy off the tongue, the reality is much harder. For example: almost everybody that designs phones is in their 20's to 30's, so it is very hard for them to put themselves in the position of a 65 year old who might have arthritis, weakening sight, some deafness, and discomfort with new technology. At Jitterbug, the engineers work very hard with the target demographic to understand how this feels, and even wear special gloves and eyeglasses to replicate the experience. Also, because everyone in the company is motivated every day of the week to create exciting experiences and ultimately value for themselves and their families through serving this segment, they find everything about it interesting and "sexy".

What could be other examples of current or potential segmentation in wireless?:

Metro PCS, Leap: these companies have targeted people with several unique characteristics - they use the phone a lot, they don't travel much outside their metro area, they don't like to be committed to a contract (maybe because they have uncertainty on cash availability). On the other hand, they don't need all the bells and whistles. Metro and Leap have build business models optimized around these kinds of needs: for example, they have built very dense metropolitan mobile networks which enable them to serve minutes at a fraction of the cost charged by mainstream operators; they have designed a pretty inexpensive acquisition model, etc. Interestingly, as with any disruptive business model - they are starting to attract a broader cross section of segments - for example, some people are cutting the cord and shifting their "phone-line" to Metro or Leap (or another wireless provider).
Kindle: Amazon, which I mentioned in an earlier post, has designed an end-to-end experience targeting intensive readers who favor some of the unique features of the Kindle - either the weight reduction, or the ability to adapt text size.
RIM: lest we forget, RIM was at one point a segment play, targeted at VIPs who placed very high value on getting access to their e-mail 24/7. Since it originated this service in a very modest way in the late '90s, it has become a behemoth, but ultimately its core proposition is still in serving that niche (just turns out that lost of people place high priority on getting e-mail 24/7)
Oh, by the way, I guess iPhone is also an example - initially targeting tech-forward Mac lovers that loved to use touch-screens, before it became a standard operating platform

I guess the point of these examples is to show three things:

To date, much of the innovation has come form outside of the mainstream. However, as shown by GM and P&G, it is possible for mainstream players in an industry to become effective segmenters. However, it will require strong leadership from the top to design and roll-out segmented strategies within a mobile operator (or the traditional OEM).
Traditionalists in the industry distinguish between facilities-owner (I build my own network) or not. I think these examples show that this is not the critical element (neither Kindle nor RIM nor iPhone "own" facilities". It is more important to ensure that you manage an effective user experience targeted at your segment.
What are you waiting for? (this is addressed to the operators)

Mobile browser is hidden weapon for operators

2009-08-16T18:33:00.000-07:00

Note - this is a paper I wrote in Jan 2009. Since I am not very adept, I just cut and pasted it from a word doc and then fooled around a bit with it. They moral of the paper is that sometimes we develop blind spots to our detriment (e.g. sometimes there is something so close to you that you take it for granted and don't pay attention until someone from afar swoops in and seizes it before you realize - could be a girlfriend, a favorite painting at your local store OR ONLY THE MOST COMPELLING CUSTOMER EXPERIENCE CHANNEL EVER INVENTED I.E. THE MOBILE BROWSER). Hope you enjoy

Mobile browser is hidden weapon for operators

SMS was not designed as a for-profit protocol, but today represents 20-30% of mobile operators’ profitability on a world-wide basis. The mobile browser began life as parody, with the failure of WAP 1.0. With its now almost ubiquitous presence, we argue that the mobile browser can be a powerful weapon for mobile operators. However, it is also a major platform for virtually every digital competitor – most notably Google – and there is a high risk that operators will concede this platform, much as their land-line brethren have in many cases conceded the broadband platform. The path to holding and growing this strategic asset is not by pumping ever more ringtones and wall-papers through the “deck” or by blocking access; rather it is by using the unique features of the browser to help their customers run their increasingly complex lives, beginning with how they manage their wireless phone.

Overview

We begin by harking back to the early days of GSM, in the early 1990s. In designing the GSM protocol, engineers built a channel to allow easy communication between the network and the handset, called SMS. Most operators did not market SMS as a product. However, users discovered early on that they could use it to communicate to one another via text messaging, and that it was free! SMS usage exploded. Recognizing the opportunity, operators were mostly careful in how they sought to convert SMS into a market, typically pricing texts at around 10 cents (vs. voice calls at around 20 cents per minute). By then, customer adoption and comfort with this new form of usage was high, and the cost advantage of SMS-based communication relative to voice still sufficient that SMS usage continued to grow dramatically. Since those early days operators have been generally effective at turning this channel into a core profit center. Despite risks of data-based competition, SMS remains one of the most broadly used and profitable products available. In a world of multiple incompatible platforms it remains the most effective way to get a message out.

In contrast, the early days of mobile browsing, through the deployment of WAP (Wireless Application Protocol) around 2000 were disappointing[1]. There were many causes for the early failure of WAP, for example slow networks and handset limitations, but in some sense the operators also contributed to this failure, often trying to “harvest” mobile browsing too early, before allowing end-users to become familiar and learn to value this new channel. Instead of seeking to rapidly monetize the experience, they might have been better off allowing users to experiment on the channel for free, and building services somewhat more selectively and on the basis of actual behavior.

Scroll forward to 2008, and the world looks very different. Browsing is finally showing signs of reaching critical mass, with “active browsers” passing 15% of all American mobile users, and with over 50% of all American’s having used the mobile browser at least once in the past 6 months[2]. The rapid adoption of smart-phones, such as the Blackberry, the iPhone or the Nokia Series 60s, has dramatically raised the expectations of users from mobile browsing. Similar to the mid-90s with the Internet, we are on the cusp of mobile browsing becoming a mainstream activity. For reference, Internet penetration in 1996, the year of Netscape’s IPO, was 19%[3], comparable to the 2008 Mobile Web usage.
However, this opportunity has not gone unnoticed. Internet portals, search engines and strong brands are reaching the mobile user through a variety of means, and in 2008 around 4/5th of US mobile browsers access their sites “off-deck” (i.e. other than by using the carrier portal. “On-deck” access (access via carrier portal) has dropped dramatically as a share of total mobile web visits, and now represents only around 17% of mobile web access[4].

Share of dollars is still dominated by carrier portals, who have focused heavily on monetization. However the experience of the Internet indicates that eventually dollars will follow eyeballs, and this suggests that revenue share will also shift away from carriers. There is a substantial likelihood that over the next 2 years, mobile web usage will be overwhelmed by “off-deck” offers, and that carriers will irreversibly lose any relevance in this channel. Perhaps this is just inevitable: who could think of successfully out-Googling Google in search, or Yahoo in casual information access?

Resisting the Inevitable: Rebuilding Carrier Relevance

We believe that there is a compelling strategy for the carriers to strike back. We certainly don’t mean negatively, by blocking access to 3rd party sites. Rather, we mean by re-building the relevance of carriers in resolving problems that matter, and where the carrier is particularly well placed to dominate. So what might those problems be, and where do they begin?

Fortunately, we can think right away of one problem that wireless operators are uniquely well-positioned to solve: cell-phone customer care. Doing so will not only start them back on the path of relevance, it will pay off immediately in cost-savings.

Phase 1: Cell-phone based care via the mobile browser.

Mobile phone subscribers have a myriad of small or large problems to solve – from something as simple as checking their balance, to making a payment, changing plan configuration or resolving a grievance.
Traditionally, these transactions have been resolved in the store or at the call center. Although in theory each contact with the end-user is a great opportunity to enhance the relationship, in practice the traditional model has been painful for both sides, with the carrier expending a vast amount of treasure in servicing the customer through these very high cost channels[5], the user often frustrated as they are forced to wait in line, wade through the IVR maze or get shunted from place to place with slow resolution of the underlying problem. “Customer-care” today represents easily $50B in cost among operators in US and Europe.

Carriers have sought to shift some of the “care” activity to lower cost channels, including IVR, online browsers or simple cell-phoned based channels such as SMS. However, this shift has not always been effective: IVR is frustrating to the end-user, and often only leads to an eventual high-cost call, online care can often be confusing and lacks easy connectivity to live agents, and SMS is fundamentally limited in what it can do.

The mobile browser is ideally suited to become the center-point of the “customer-care” experience. It is available in most cell-phones, it is accessible 24/7, it can rapidly provide relevant customer information, and it can easily be linked to a live agent through the phone itself (or even via a chat channel through an IM application).

The range of areas that can be covered range from enabling top-ups by browser for prepaid customers, through to solving account or usage issues for post-paid customers. If the complexity of the issue rises above the level that can be resolved in an automated way, either the user or the operator (through a trigger) can set up a live session to close resolution. Browser-based care can be effectively marketed by the carrier – for example via outbound SMS sent to the mobile phone or browser-push. User take-up can be very rapid, with adoption rates in the 30-40% range within the first year of introduction. For an operator with 10M subscribers, the annual cost savings from effective implementation can exceed $70M in year one and $140M in year 2 (based on deflection of high-cost calls)[6].

Phase 2: Using the Browser as a Customer-Base Management Tool

Once the carrier gains some critical mass in browser-based care, it has now opened up a gateway through which it can begin to proactively enhance its relationship with users, based on their profile and behavior. For example, prepaid users in the US typically have very high churn rates (in the 5-6% rate each month) and generate low monthly revenue. Carriers would be in a position to extend a series of offers via the browser that help extend their duration or monthly revenue – for example, carriers might offer loyalty points that increased in magnitude with each browser top-up, creating accelerating incentives for users to remain on the service. Carriers who have access to multiple services (fixed-line, DSL, TV) could also experiment with bundling options. The browser has major benefits as a channel for this type of management tool: (1) It can be adapted to the observed behavior of each user (so, for example, focusing base-management actions on users for whom there are indications that they are seeking such offers); (2) It can be delivered in a narrow-cast approach, minimizing the risk associated with a broadcast marketing message; (3) It can be managed iteratively, to learn from user response and ensure appropriate calibration at each stage.

The benefits from phase II activities are both tangible, in the form of improved customer-level metrics (reduced churn, improved monthly ARPU), and intangible, in the form of further enhancing the customer relationship and gaining “permission” from the user to extend this relationship.

From a strategic perspective, the carrier may now be in a good position to extend their browser-based marketing beyond their own business into third parties.

Phase 3: Expanding to 3rd parties

With wireless penetrations of between 75-80% of the population[7], mobile users are in effect a pretty good proxy for the active population in the West – everyone with the exception of the very young, and the very old or those with major financial or health limitations.
There are a variety of everyday “problems” that such users need to solve, and which the mobile phone is very well positioned to deliver or enable. For example:

· Bill/account viewing and payment – cable, electric, phone, banking
· Selection/reservation – for example with Netflix (movies), Opentable (restaurants), TiVo (DVR programming)
· Mobile extension – for example with auction services (Ebay)
· Situation-aware problems – for example, location and timing-based services

There are some “problems” for which the carrier is unlikely to be competitive. For example, if users are looking to search for something, it is unlikely that they will choose a carrier-provided solution, and will instead opt for Google. There are other areas which may be off-bounds because the carrier is already operating a for-revenue business in that space, for example sales of mobile content such as games and ringtones, or value-added services such as navigation or mobile TV.
However, there are many “problems” which either have not been effectively solved on the mobile phone or where the carrier can act as useful gateway to introduce users to an existing service. Many companies with powerful off-mobile assets are still unsure how to most effectively service their own customers through the mobile phone. The operator, having first demonstrated that it can effectively serve its own customers through the browser, and then built an effective “micro-marketing” engine via the browser, is now in an invaluable position to “guide” other powerful brands down the same path[8] . At this stage, the carrier brings powerful assets to bear:

· Prior experience in marketing and fulfilling customer care on the mobile phone
· Some “permission” from the user to allow the carrier to offer access to new services (presuming the carrier has acquitted itself well in phase I)
· Selected context-dependent information if appropriate (for example, location)
· User preferences based on prior and evolving behavior
Many of the principles that guided DoCoMo[9] in building traction in Japan will apply equally here: (1) Take a position on what is relevant to the user, but also allow for much experimentation; (2) Focus on ease of use; (3) Target critical off-mobile brands for prominent position; (4) Establish fair access; (5) Trade-off profit per unit in favor of volume.

As with any permission-based situation, it is also critical that the carrier does not abuse or weaken the “trust” given by the user by either delivering a poor user experience or by excessive short-termism. Returning to the different fortunes of SMS and WAP, the carrier needs to focus strictly on delivering a great consumer experience.

Timing is important: with the explosive growth in non-carrier activity across all areas of the wireless stack, the carrier will be fighting for relevance with some of the most powerful and effective players in the digital world. If it cannot build traction through this kind of strategy before 2010, the opportunity is probably over by then.
Conclusion

If we take the prior Internet adoption path as template, we are now at the beginning of an accelerating wave of mobile browser adoption. Many carriers have relinquished a dominant starting position, by favoring narrow profit goals at the expense of establishing customer relevance. They also face formidable competition from some of the best digital marketers in the planet. Nevertheless, the game is still at an early stage, with mobile browsing representing less than 5% of Internet volume in the US.

The road toward relevance regained will not be easy, but the carriers have powerful assets they can use, a clear way to build initial momentum through internally-focused actions, and a path to expand beyond by enlisting the assets of 3rd party and many of the everyday needs of the mobile-enabled population.

[1] One notable exception was Japan, where NTT DoCoMo was highly successful during the 1990s in driving adoption of its iMode browser service. The drivers of this success have been covered extensively in the press and in various case studies.
[2] Nielsen Mobile, July 2008 Critical Mass, The Worldwide State of the Mobile Web
[3] Harris Interactive Internet usage information
[4] Nielsen Mobile, July 2008
[5] Typically, an in-person problem resolution can easily generate $20 in cost and a call-center resolution $10 in cost. By comparison, resolution through a low cost channel is as low as 10-20 cents per event
[6] Nauta Capital is an investor in MobileAware, a company that is active in enabling browser-based customer care for mobile operators, financial services and transportation companies
[7] Even though in many European countries, wireless penetration exceeds 100%, a significant number of users have multiple SIMs, and approximately 20-25% of most populations do not have cell-phones
[8] It goes without saying that if an operator cannot demonstrate that it has learned how to communicate to its own customers via the browser, it has little credibility in helping 3rd parties to do so
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Mobile Console Gaming

2009-08-16T12:59:00.000-07:00

Enclosed is a paper I wrote in December 2008. I developed it based on some work that one of our portfolio companies, Zeemote, had been doing at the intersection of the mobile and gaming industry. It illustrates some of my core theses on the creative destruction process in and around mobile over the next 2-5 years. It is somewhat over the top. However, since I wrote this paper a number of others seem to be subscribing to these ideas, and some aspects of the thesis are clearly bearing out: for example, a few recent shifts:

The latest generation phones - iPhone 3GS, Nokia N97, HTC Magic, Palm Pre - all have processing power within 15-20% of gaming consoles such as Xbox, Wii
Most of the smartphone makers are including Tv-out as a feature, which becomes a critical enabler for the use of the mobile phone as a console-gaming equivalent
Zeemote has extended the range of phones that it covers substantially, and is in the process of becoming a standard interface for any Bluetooth enabled phone

http://www.zeemote.com/format/images/whitepaper/uk/Global_Gaming_Market_Evolution_Dec_2008.pdf

Mobile Tectonics Manifesto

2009-08-16T05:41:00.000-07:00

The next explosion of global productivity will be driven by processes that use the mobility infrastructure currently on the ground, and the waves of new infrastructure soon to become available. This blog is called "mobile tectonics" because the underlying assumption is that through the classical process of creative destruction, we shall see substantial shifts in shareholder value enabled by mobile technology.
By "infrastructure" I don't mean merely the millions of base stations that carry mobile traffic, but also the +4billion installed-base of cell-phones and cell-phone users, the enabling Internet infrastructure that has been primed for easy mobilization, the vast store of business processes that have been improved in prior waves of productivity, and so forth
As with the last wave of productivity via the Web, the sources of mobile-enabled productivity growth will be ubiquitous. There will be two fundamental themes: (a) improving consumer experience and the quality of engagement between the consumer and the enterprise via mobile technology; (b) improving employee productivity by optimizing the use of company assets (people, technology, real estate, IP) through ever smarter and more pervasive mobile technologies
Mobile tectonics is already here - for example, in 2006 Apple and Disney had comparable market valuations (in the $60B range). They both made significant investments in mobile. In Disney's case this included ESPN Mobile and Disney Mobile, both investments that were ultimately pulled, at a combined cost that easily reached $1B. More important than the investment loss, was the opportunity cost of not taking advantage of the new space, which potentially could have added +$5B-10B of market cap to Disney. Notwithstanding many other effective investments in mobile, Disney failed to gain strategic advantage through mobile. Apple in the mean time was spectacularly successful in building a vast growth platform through its mobile initiative, which has arguably added in the order of $30-40B to its market cap (acknowledging the vagaries of stock-market valuations in these interesting times).
Is this a one-off event? Far from it: look at how Samsung, Apple, HTC and RIM have been eating into the traditional world of handset makers, setting the stage for $20-50B in market cap shift, or how Amazon (whose shot across the bows of the book industry helped usher in the Internet revolution) is seeking to re-invent publishing through its Kindle initiative. Look at how the traditional console-gaming industry, dominated for many years by the big three Nintendo, Xbox, Sony is being attacked by the disruptive pincer of broadband and mobile enabled gaming. Or how NewGM's core advertising theme coming out of bankruptcy is its OnStar mobile service.
You might say, maybe mobile is strategic for some sectors such as gaming, music, cars and so on, but of what strategic relevance is it to ME. I would argue that if you are a Board member or Senior Executive of any Fortune 1000 company, you should be asking yourself, or your CEO, "what the dickens is our mobile strategy" (how does this stuff threaten us, how do we benefit from it). For example, lets say you are a retailer - imagine now that YOUR customers are going to be walking into YOUR stores, asking lots of questions of YOUR employees, and once they have completed 98% of their shopping process, will choose to transact the last 2% on their smart-phone (i.e. writing the "check"), by placing an order with THE COMPETITOR who chooses not to invest in all these assets and sells it for a 20% discount, turning your store into a wonderful museum. Or you are an airline and it turns out that business customers flock to your COMPETITOR because they have a faster and better mobile check-in process or because when THEIR CUSTOMERS are stranded in an airport they can book a new flight and a hotel overnight from their mobile phone without spending 30mts in line at the desk or on the phone behind every other passenger. Should I keep going?
If we hark back to sometime like 1996-1997 we had a similar thing going on, lots of interesting stuff going on with the Internet, a bunch of excitement in the Valley, but many in the commanding heights of our global economy were wondering what was the strategic relevance of all that. Some moved early and well, some moved early and badly; some moved late and did fine, some missed the boat altogether. Net/net by around 2002 this wave had largely worked itself into coherent strategies at the majority of Fortune 1000: some came out winners, some losers, some did not see a big shift - but for all the Internet became relevant enough that it merited some degree of Board level attention.
If you start asking questions, you will get the usual "we are on to it" response. There are surely various initiatives floating throughout the organization (an iPhone app here, a short-code there, a dot.mobi effort yonder), there may even be someone at a senior level whose role is to shepperd wireless stuff. However, my guess is that in 95% of Fortune 1000 companies there is not a coherent and logical response to this new environment. Interestingly enough, even wireless operators (the people who deliver a lot of this technology) often lack an effective mobile strategy. For example, if one asks the question - how are you leveraging this new ecosystem to ensure you optimize your customer engagement strategy? - 9 out of 10 operators do not have a clear response.
Before wrapping this Manifesto, I will comment on TECHNOLOGY. This is a problem area for mobile. The Internet made the world fairly simple - you basically could bring your digital assets onto the web, create a decent user experience and you were up and running. The Internet benefitted from the wonderful standardization brought to us courtesy of IBM, Microsoft, and the Browser guys. Mobile makes the world very complicated. There is a Babelian world of platforms, languages, virtual and physical machines built in to this space that make it really hard to make some choices around. This is one reason why even the purveyors of mobile don't quite know what to do. There are a few places where you can tread safely - SMS is a standard, mobile web can be mostly thought of as a standard though requiring a bit of intermediation, iPhone apps seem to be establishing some sets of standards; however figuring out how you bring it all together remains complex.
So to summarize: (1) Mobile will be the next productivity monster; (2) Most Fortune 1000 firms don't have a coherent plan to deal with it; (3) Its actually quite tough to figure it out.
What is my interest and why am I blogging about this? I have spent the past 15 years in this industry, first working with mobile operators to get their businesses up and running, then working with non-operators who needed to think strategically about this space. For the past 3 years I have been a venture capitalist focused on wireless, so I have been exposed to some of what is coming down the pipe. I am interested in hearing from those who find any of the above interesting, who want to challenge my ideas or share with me their own thoughts.