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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.

Techcrunch Disrupt: (Only) a Few Big Ideas

Perhaps I'm getting jaded, but I somewhat agreed with Vinod Khosla's comment yesterday at Techcrunch Disrupt where he said there was too much linear thinking going on with startups and something like announcing a UI change in Microsoft's IE did not belong at the conference.  

Some of the low-points of the conference:

• Several "check-in" companies checking into products, places, people, websites and who knows what's next - checking into shoes, hairstyles, weather?
• Several companies making it easier (somewhat) to manipulate, filter, stream real-time content
• Several companies enabling gamification of everything

Perhaps this is just natural evolution taking its course and perhaps this will lead us to some really compelling user experiences and value propositions down the line.  Perhaps...

However, there were only a few ideas that got me thinking "Holy s****", this is a big idea and could change some part of the world fundamentally.  So here are my "meta-idea" picks from the conference, all of which fundamentally deal with data:

• The big idea - leverage the collective brain-trust of an enterprise. The implementation: Opzi - "Quora for the enterprise" - supercharge enterprise productivity by aggregating the collective knowledge of an enterprise and making it easily accessible and addressable down to each employee
• The big idea - users own and wield their own online data.  The implementation: Shwowp - "Yodlee for the people, by the people" - enable users to aggregate their own shopping history/date and then selectively share this with retailers to drive better deals.
• The big idea - take mobile analytics beyond web analytics.  The implementation: Apsalar - "Kissmetrics for mobile" - in-depth analytics to survey, track and optimize users as they flow through and across your mobile apps.
• The big idea - present real-time information at the "right-time". The implementation: Datasift - tuning and filtering Twitter streams to your liking. I would have liked to see a use-case (e.g. commerce, research, brand monitoring) other than more personalized consumption.

And here are shoutouts to two Venrock-backed companies, Redbeacon and CloudFlare, that presented at the conference.  We are excited about the prospects for both these companies and look forward to continuing to work closely with them!

The first is Redbeacon which won Techcrunch50 last year.  Redbeacon's vision is to do to local service providers what Expedia/Travelocity/Orbitz did to airlines i.e. make it super-easy to search, compare and book local services (plumbers, electricians, gardeners, trainers etc.).  Redbeacon announced it was expanding its service to Seattle, launching with several media partners (NBC Bay Area, SF Gate, Tribune/Fox Seattle), and launching its widget for inclusion on any website.  We believe Redbeacon has the potential to disrupt the $150B local advertising and lead gen market. Last year's Techcrunch50 video here:

The second is CloudFlare which won an Innovation Award at this conference. CloudFlare's vision is to serve smaller websites and provide them the performance and security infrastructure that only the largest Internet giants can afford.  Value prop: speed up your website by 30% and protect your website's visitors from spam/malware attacks.  CEO Matthew Prince showed how CloudFlare is signing up 2 customers (websites) per second today.  TC Disrupt video here:

The Digital Car and Harman's acquisition of Aha Mobile

 

Harman today announced its acquisition of Aha Mobile, a Venrock portfolio company.  We are quite excited about all the possibilities for Aha to leverage Harman's massive footprint and for Harman to provide a completely new set of differentiated experiences to its customers.  We wish the whole Aha team, including Robert, Max, Rafael, Ryan and Jason the best of luck as they bring Aha's innovative digital car services to millions of cars in the future.  Here's the press release.

I remember thinking about this idea while driving up and down the I-280 from San Francisco to Palo Alto and back everyday in 2007.  I was (very) bored with my car's radio channels as well as frustrated with not being able to access (safely) my own personalized web content while driving.  So I thought, how about an in-car user experience that brings me all sorts of web content, such as my own personalized road traffic report or email or other social feeds?  Out of this was borne the idea for Aha Mobile (the name came later).

Aha's CEO Robert, along with his colleagues, developed this idea further to incorporate a completely audio-based experience; content personalized based on location; interactivity to allow the user to say something that posts back to Facebook, the road traffic feed, etc,; and a back-end platform to aggregate data from across the Web.  I still believe that this is a truly innovative approach to in-car web services.

Our thesis: the digital car

We continue to look to partner with superstar entrepreneurs to drive the digital car forward (no pun intended!).  We are investors in INRIX and Where.  INRIX provides highly accurate traffic services to automotive OEMs, navigation software companies, online map providers, GPS/PND device makers, the public sector and others. Where is a mobile location-based search and advertising company. 

We developed a thesis on investing in the digital car, a megatrend that I believe will play out over the next decade at many levels of the value-chain.  The digital car leverages other megatrends such as pervasive broadband access, smartphone saturation, location and general user addiction to personalized web services.  At that time, in 2007/2008, some of the areas that we found interesting to prospect into included: new map databases, consumer voice apps, voice recognition engines, connected PNDs, location-based services, off-board navigation, connected media services, app stores for the car, and data aggregation.  We believed that some other areas of the digital car had already matured and were therefore not necessarily the right place to invest - these included: PNDs, in-dash operating systems, locationing technologies, broadband connectivity providers, enterprise telematics, and POI data.  Many of these elements are different in other markets, such as China, India, SE Asia, and similar in the EU.

Since then, many, if not all, of these areas have changed quite dramatically, showing how difficult, if not impossible, it is to try and predict the future in tech.  Some of the changes since 2007/2008 that impact the digital car have included: 

• the rise of smartphones (iPhone had just launched and Android was a theory) and app stores
• the rapid growth of Pandora and streaming mobile media in general
• the dramatic price reduction in mobile navigation solutions driven by Google
• the financial crisis and resultant slowdown in automotive sales
• a change in mindset of auto OEMs from telematics (essentially call-center based services such as OnStar) to connected services (such as Ford's Sync service and BMW's ConnectedDrive)
• the peaking of the PND market
• the sales of Navteq and TeleAtlas to device OEMs (Nokia and TomTom, respectively) and the rise of other map databases such as OpenStreetMap and Google's own map database
• the exponential growth in open data access through APIs such as for Twitter, Facebook, Yelp and several databases

There are also some constant themes and frustrations when it comes to the digital car:

• Business model differences between consumer web services and automotive OEMs
• Impedance mismatch between automotive OEMs and consumer web services in terms of iterating on new technologies
• The gap between the promise of voice recognition and its actual performance in the noisy environment of the car
• Slow emergence of standard interfaces and protocols in the car to connected with mobile devices or the Web (I would call the 12V plug as well as auxiliary jack for iPods standard interfaces)

And finally, there are some user-interface concepts that I outlined in these slides that I believe still apply for any in-car experience:

9 Questions for Digital Car Application Developers

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