NextWala

Mobile-Only is the Future: A Rebuttal

(Photo by Stormwarning)

I read with interest Fred Wilson's article on "Mobile First, Web Second." from last August. I had written about this subject prior to that and like the direction in which our collective minds are going. However, I think we've all gone a little far in taking this concept and elevating it to: Mobile-Only is the Future.

Despite my enthusiasm about mobile, allow me to rant a bit on why the above may not be so:

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By BS-sensor gets activated whenever I hear a 'Mobile is completely different. Don't try to stuff the Web onto a mobile device' pitch.  Or even a 'The future is mobile' pitch.

Ten years ago, I was on the other side of this argument, pitching how every website needs to be modified and optimized to be more usable on a cell phone (as these things were called at that time!).  And I was adamant that mobile experts were the only people who knew how to succeed with mobile technologies/startups.

But it's different now:  The Web has invaded mobile.  

• Gone are the days when a specific company's application could be the sole mobile-operator-nominated solution in a specific area e.g. mobile road navigation, mobile browser, mobile payment, mobile advertising, mobile sales force automation, mobile games, mobile commerce, mobile marketing, etc.

• Mobile and Web technologies have converged.  Think browser standards (HTML5, CSS, Javascript), advertising (IAB-standard banner ads, mediation, audience buying), standardized payments (card-not-present credit card payments), cloud computing (public APIs, storage), webcams (FaceTime, anyone?), social (Facebook Connect everywhere, Facebook/Twitter/LinkedIn sharing everywhere).

• And it's not just Web technologies making their way into mobile but mobile concepts moving onto the Web- think two-factor authentication on ecommerce sites, notifications/ SMS alerts from your bank, app stores for websites (Chrome web store), location-based personalization on your favorite web apps.

To be fair, there are unique features on  both sides like all the sensors on mobile devices and the massive real-estate on PC browsers.  And there is a must-do-it-now/can-do-it-now quality to anything available/usable on a mobile device as well as potentially some different usage scenarios because you are sometimes interacting with the 'real world' when on your mobile device.  And there are also some big gravity-wells in the mobile eco-system - namely Google, Apple, mobile operators aka ISPs, etc. - that don't behave quite the same way they do in the Web eco-system.

However, I think technologies and usage scenarios will continue to converge.  A page on mobile browser will be a page on a PC browser. A payment from a mobile device will be a payment from a PC.  Increasinly, one integrated backend system will aggregate content, access third-party systems, provide analytics, deliver advertising, manage security across Web & mobile. 

And this means that mobile-specific technologies may have a shorter window of opportunity that you would otherwise think, some shorter than others.

So pause, for a second, next time you hear 'Mobile is completely different' or 'Think mobile-first' and ask: 'Really? How so? And for how long?'

Mobile: A Walk Down Memory Lane, 2000 to 2011

We've come a long way in mobile from 2000 to 2011 and I'm excited about where the industry is heading.  Going forward, I believe many challenges endure, including multi-platform global distribution, monetization, retention, mobile enterprise, payments and networks of apps/services.  And these are the areas in which I am interested in investing in the next few years.

To put things in perspective, I thought I would do a little walk down memory lane:

Way back in early 2000, I thought that mobile had arrived. Little did I know that we were too early, too early by a decade.  

I co-founded a mobile app development platform company (Phonespan at that time, later renamed to Covigo) in early 2000. It was so early, in fact, that our demos were literally delivered on green-screen Motorola StarTAC phones (remember those!).   Our revolutionary (at least to us, at that time) demos included the ability to transfer money between checking and savings accounts on Bank of America and the ability to check eBay auctions, both from a WAP 1.0 phone.  The only problem was that in our pitches to VCs, our demos would never work because there never was (and still isn't) good cell coverage on Sand Hill Road.

Since then, the a lot has changed (except for cell phone coverage on Sand Hill Road).  A lot of the players in mobile are different, the apps are different, the business models are different, the go-to-markets are different.  However, a lot remains the same as well - app development in a heterogenous environment remains tough, mobile enterprise is still in its early stages (although picking up steam), carriers/OEMs still have some power to exert in distributing services (although far less than before), featurephones still dominate the installed base around the world and texting/SMS still dominates mobile communications.

To summarize this change, I've tried to list below some of the memorable differences and similarities between mobile in 2000 and mobile in 2011.  

	2000	2011
Mobile subscribers in the US	100 million	300 million
Mobile subscribers globally	600 million	5.2 billion
Mobile penetration rate global	~10%	75%+
Leading mobile geographies	Japan, Scandinavia	USA
USA wireless data revenue	$200 million	$50 billion
USA Mobile operators	SBC, AirTouch, AT&T, Bell Atlantic, GTE, Sprint PCS	AT&T/T-Mobile, Verizon, Sprint
Leading OEMs	Nokia, Palm, HP/Compaq, Motorola	Apple, HTC, Samsung, Motorola, several Chinese OEMs
Popular content type	Ringtones, wallpaper, J2ME games	Apps, apps, apps
Popular OSs	MS Pocket PC, Palm OS, BREW, J2ME, RTOS	iOS, Android, J2ME
Popular device types	PDAs (side-loaded), flip-phones, candy-bar phones	Smartphones, tablets
Go-to-market	Mobile operators, device OEMs, ISVs	Direct-to-consumer, app stores, web, enterprise
Browser standards	WAP 1.0	XHTML/CSS/JS, Webkit, HTML5
On-device storage	16MB RAM, 128MB memory	300MB RAM, 8GB++ memory
Cell network	2G, 2.5G (EDGE), 100kbps	3G/4G, Wifi, several Mbps

I can only imagine how the mobile industry will change in the next ten years. Bring it on!

Exciting Year for Mobile Software IPOs - Motricity, Velti, ePocrates ...

It will be an exciting year for us mobile enthusiasts who have seen each year be proclaimed as the year of mobile for the past decade.  Two mobile companies (Motricity and Velti) have gone public in the past few months.   I'm excited to see the next two go public: Epocrates - mobile healthcare solutions; and Boingo Wireless - global WiFi access network.  

Motricity, Velti and Epocrates all point to the strength of mobile software, content & applications, as opposed to what we've been used to seeing so far in the public markets i.e. access, device and semiconductor companies.  I think Motricity and Velti are precursors to many other mobile distribution/advertising companies that will grow big over time - perhaps including companies like Getjar, Pocketgear, Where (full disclosure: a Venrock investment), Millenial Media, Jumptap, Transpera etc.

All this activity just makes me more excited about the prospects for new mobile/tablet-based software startups in all areas - consumer apps, payments, ad-tech, security, enterprise, communications etc.  Dare I say that perhaps the '10s will be the decade of mobile and by the end of this decade, we will look back and wonder (i) why laptops/desktops did not disappear from our lives even sooner and (ii) how mobile has leveled the playing field across the globe for access to the Web & communications.

Anyway, back to IPOs.  The last mobile company to go public was Motricity (NASDAQ: MOTR).  Motricity provides a white-label content store for mobile operators to tell ringtones, wallpaper etc. MOTR has more than doubled in valuation since its IPO in June 2010, now trading at $650M enterprise value (or ~$800M equity market cap) at a TEV/2011 revenue multiple of 3.7x (TEV/2010 revenue multiple is 4.9x) and Price/2011 earnings multiple of 25x (Price/2010 earnings multiple is 51x).  2011 revenues are estimated at ~$175M, up from $133M in 2010.  Here's the Motricity prospectus.

Velti (NASDAQ: VELT) went public last week.  It provides mobile marketing solutions (ad creation, ad buying, ad serving).  The company is valued at $700M enterprise value (or ~$770M equity market cap) at a TEV/TTM revenue multiple of 5.6x and Price/TTM earnings multiple of 63x.  Revenues have grown nicely, from $90M in 2009 to $125M for trailing twelve months ended Sept 30, 2010.  TTM EBITDA is $39M.  Here's the Velti prospectus.

Velti is clearly more of an international play - only 2-5% of Velti's revenue comes from the US, with the bulk 75-80% coming from Europe and the remainder from Asia.  In addition, Velti has created JVs in China (Cellphone Ads Service E-Exchange) and India (HT Mobile Solutions).

Despite not having a large revenue base in the US, the company turned to the US to cheaply acquire key technologies (each for at or below $10M):

• Mobclix (mobile ad exchange) in September 2010
• Media Cannon (mobile ad creation tools) in June 2010
• Ad Infuse (mobile ad network) in May 2009

Disruption in the Location/Local/LBS Stack

Photo source: Dave Mathis

I moderated a panel on location platforms this past Saturday at Cyberposium, a tech conference organized by students at Harvard Business School.  On the panel were: Evan Cohen, GM, Foursquare; Ted Morgan, CEO, Skyhook Wireless; Tom Sexton, VP Sales, Inrix (a Venrock portfolio company); and Stephane de Messieres, Founder, Citizens Market.

I have distilled what I learnt from this panel into the following set of questions that I believe founders of location startups should ask themselves:

1. What market are you in? If you think you are in the location-based services market, think again. Location or LBS is not a market or an industry other than perhaps at the pure infrastructure level where positioning technologies such as GPS chips or location servers are licensed/sold.    You might be in advertising, automotive, retail, enterprise software, local media or something else.  Your business models and go-to-market need to be adapted to which eco-system you are in.
2. How many other similar companies are there in your portion of the eco-system?  Given the hype cycle in location, I'm observing dozens and dozens of me-toos in each segment.
3. What do you do to escape commoditization from the platforms (Apple, Facebook, Google, maybe Microsoft)? And a corollary: how much will your success depend on successful integration, distribution and/or monetization through the platforms (e.g. will you have to give up 30% of your economics like Zynga did to Facebook)?
4. How will upcoming changes impact your business?  including perhaps privacy-related regulation from the FTC; litigation between and from the platform players; and cost-effective availability of positioning for featurephones.

How the market has evolved

Software that derives a majority of its value from incorporating location fixes or location-based data has been around for a while but only in pockets where the Web/Internet had not intruded until a few years ago.  Examples include:

• Automotive navigation solutions: Tier 1 automotive suppliers, auto OEMs, QNX/WinCE as OS
• Digital maps & POI data: Navteq, TeleAtlas, InfoUSA, many other POI providers
• Enterprise/government GIS: ESRI, Autodesk, Oracle/Sybase spatial servers
• Pre-smartphone mobile navigation: Telenav, NIM, many others
• Personal navigation devices: Garmin, TomTom, Navigon, many others

The Google Maps API launched earlier this decade really opened the floodgates to innovation.  And then the arrival of smartphones and always-on broadband connectivity has revved up the developer eco-system even more.  

There is somewhat of a top-of-the-hype-cycle feeling to parts of this market, especially at the apps layer.   In addition, under assault by "free" developer platforms, ad-supported business models, social, "free" location fixes, commoditized location data and always-on connectivity, many of the companies in the segments above have retreated to their high-margin bastions (e.g. automotive OEMs for Navteq) and are facing continual erosion of their markets from startups (or Google in many cases).   However, I believe location will continue to work its way into more and more segments and will become an ingredient in almost every web & mobile service/app.

Here's how I break out the market.  There are of course companies that span multiple layers but I have tried to place companies in their core layer.  Of these, I think augmented reality, while a very early space, has the potential to produce a platform play as it fundamentally changes user behavior and can be a container for a whole set of new apps/experiences.  I also excited about new companies at the data layer and in local commerce/mcommerce.

Layer 1: Positioning Technologies

We've seen offdeck locationing services (based on Wifi or cellID triangulation) emerge - Skyhook, Google, Ekahau etc.  GPS has worked its way into many smartphones through the likes of CSR/SiRF and Qualcomm. And there is IP-based locationing offered by Quova and others.  An exciting development is carrier-provided location fixes, aggregated by Location Labs, Loc-aid and others.  I've seen a lot of indoor positioning technologies in the past year, however almost nothing that's gotten beyond very niche use-cases (i.e. firefighters fighting building fires) and the requirement of changing network infrastructure as well as client-side infrastructure/software (expensive!).

Layer 2: Location-based Data & APIs

The base data layer consists of digital maps, provided by Navteq (now Nokia), TeleAtlas (now TomTom), AND, Autonavi (China) and Satnav (India).  New entrants such as Openstreetmap and Waze have the potential to change the game although Google's move into creating/owning its own map data is a threat.  Social/crowdsourcing is the new trend here in addition to monetization not through licensing of map data but through other models such as advertising and freemium subscription-based applications.  

On tops of maps, there are layers of slow-changing POI data such as from Wcities, Axciom, InfoUSA, AT&T Interactive (Yellow Pages) and others. Even this area is under attack from crowdsourcing-based solutions. I would argue that the real asset that Foursquare, Yelp, Google etc. are building is a proprietary POI database that is far deeper and more up-to-date than conventional sources.  There is an ongoing battle for the best POI database.

And on top of this are dynamic data providers such as road traffic speeds, gas prices, weather, events etc.  Inrix (a Venrock portfolio company), Navteq/Traffic.com, Zvents, Weather.com, Plancast etc. are some of the vendors in this area.

There are a set of location data aggregation services, including Location Labs, SimpleGeo, Factual, Xtify, PlaceIQ and Locomatix (covered in my previous blog post on geo-fencing and opt-in notifications).  Many of these companies not only aggregate but also provide data manipulation APIs of various kinds, including geofencing.

Layer 3: Developer Platforms/Monetization

Platforms provide an audience, distribution, monetization and enabling technologies.  By this definition, one has to include the device OEMs as platforms, including Apple/iOS, Google/Android, Microsoft/Windows Phone, Nokia/Symbian/Meego, Samsung/Bada etc.  

I think media properties such as Facebook Places, Google Maps/Earth, Bing Maps and Mapquest are platforms, not only providing geospatial services but also bringing an audience to consume developer applications as well as potential monetization capabilities.

And finally, I would include enterprise platforms (such as ESRI, Pitney Bowes/MapInfo, Weogeo etc.). and location-based promotions/advertising firms such as Placecast, Where Ads and others in this category from a monetization perspective.

Layer 4: Applications/Services

It's almost impossible to categorize the thousands of location-enabled apps.  Local search (Google, Microsoft, Where - a Venrock portfolio company) is an established category as are local reviews (Yelp, Urbanspoon) and navigation (Telenav, NIM, Waze, Skobler).  

Upcoming areas include social (Foursquare, Gowalla, Facebook Places), augmented reality (Layar, AcrossAir, Sekai Tonchidot), local product search (Milo, Google, eBay/Redlaser), local transactions (Redbeacon - a Venrock portfolio company, Opentable), indoor maps (PointInside, Micello) and digital car (Pandora, Aha Mobile - a former Venrock portfolio company, Trapster, VoiceontheGo). [Addendum: Awarepoint, a Venrock portfolio company, provides a healthcare IT solution that uses location for hospital asset tracking.]

Addendum: Layer X: Monetization

It almost does not make sense to include monetization in this post since there are lots of different revenue models, some B2B, some B2C and most of them not having anything specifically to do with location.  Business models range from per-device fees, per location-dip fees, CPM-based advertisement, annual subscription fees, local transaction fees, software licensing and every other model on earth.  However, the industry sometimes discusses location-based advertising as part of the 'location industry' - so I would include location-based promotions/advertising firms such as Placecast, Where Ads and others in this category from a monetization perspective.

Why Geofencing & Opt-in Notifications Could Save Foursquare

Source: Psiaki

Last week at CTIA, I moderated a panel on location-based advertising - it was a pleasure to have a conversation with Fred Boos of Rocketbux, Anne Bezancon of Placecast, Dan Gilmartin of Where, Rip Gerber of Loc-Aid and Lisa Petersen of Neustar.  

The panel got me thinking about the future of mobile advertising. For all the talk about location-based advertising and services (e.g. Foursquare, Facebook Places, Gowalla and the like), there are some core sustainability issues about these services.

Many mobile users, myself included, are still scratching their heads as to the utility of these apps, especially check-ins.  We are starting to see the developer community answer this criticism with some useful services, such as barcode scanning/price comparisons (e.g. from Zappli, eBay/Redlaser and Amazon), coupons (e.g. from Rocketbux and Cellfire), and local offers (e.g. from Where and xAd). 

From the perspective of advertisers, whether local or national, only a tiny percentage (my estimate is 2-3 5%) of mobile users' time is actually addressable with location-based advertising. Why?  Because when you multiple the 23% 30% that have smartphones by the 50% (my guesstimate) that have installed Facebook/Foursquare/Gowalla/etc by the 30% that open up these apps in specific locations to find information, you get a very small percentage.  

The solution, in my opinion:

• doesn't require users to open up specific apps all the time.  Perhaps it delivers information through notifications / text
• is opt-in / permission-based. Not only is spam an issue but privacy has to be maintained at all times
• knows the mobile users' location at anytime (even if they're not logged into an app) - I call this 'persistent locationing'
• intelligently understands the relevant area around the user from which to cull information/marketing messages. In other words, 'geofencing' around people, not locations. [Addendum: the key issue here is scale which I've been thinking a lot about especially as our portfolio companies INRIX, Where and Aha Mobile have all had to operate at large data scale.  When you have millions of location traces updating every few minutes or even every second, how do you multiplex this with millions of users and thousands of offers and create meaningful and accurate output streams. Not an easy computer science problem to solve.]
• is constantly running in the background (not on the phone but in the cloud) to search the users' surroundings for relevant information/marketing messages. In other words, 'persistent search'

For a location-based apps company like Foursquare, I think this is the only way they become truly universally usable, applicable across all 305M people in the US.  They also become appealing to brands/advertisers.  To achieve this, they need to do a big integration job across these APIs/web services. Here are the relevant vendors (not an exhaustive list):

• Notifications/text: SMS through aggregators such as Singlepoint, Sybase 365, etc. or smartphone notifications through Urban Airship, iLime etc.
• Persistent locationing: Location Labs, Loc-Aid - these vendors have integrated across multiple mobile operators and can expose any user's location, at all times
• Geofencing: Locomatix, Placecast, Location Labs, Simplegeo, [Adding: Xtify, based on Josh's comment]
• Persistent search: No one vendor here. Algorithms have to make sure not to ping database APIs (such as Yelp's API) too often or risk getting shut-off.

And finally, a couple of issues need to be addressed head-on for this solution to be successful: first, privacy, and second, business model.