Abstract:

The TIE Wireless Special Interest Group (SIG) held their annual review and outlook meeting on December 11th in Santa Clara. This article highlights key points, observations and take aways from the panel session.

2008 marked a milestone year for the mobile industry worldwide, with the launch of the Apple Appstore, Google’s Android, the mainstreaming of consumer smartphones, and a global recession. The key trends and shifts observed in 2008 were reviewed, and several predictions were made for what might be hot in 2009.

Session Moderator: Tim Chang, Norwest Venture Partners

Panelists:

• Peter Barry, Head of Venture Capital and Start-ups, Vodafone
• Jay Boddu, Kauffman Venture Fellow, Sofinnova Ventures
• Nagesh Challa, Founder, Director, President & CEO, Ecrio
• Rob Trice, Senior Managing Director, SK Telecom Ventures

Introduction

According to Chetan Sharma, Technology & Strategy Consultant, “the US wireless data market shrugged off the economic doldrums in Q3 2008 and grew 7.3% Q/Q and 37.5% from Q307 to reach $8.8B in data services revenues. The total for the year (for first 9 months) stands at $24.5B which is equal to the revenues generated in 2007 (full year)." But things don’t look so rosy for the 4th quarter and for most or all of 2009, according to the panelists.

Mobile Industry Trends

• Success of iPhone, touch screens, and App stores. Apple now going after enterprise customers for the iPhone.
• Global Financial Crisis had negative impact on the sector in 4th quarter of 2008.
• Open source movement: Android/Open Handset Alliance, Symbian, Taiwan Ministry of Economic Affairs Moblin initiative, etc
• Wireless industry progress and momentum outside of Japan and Korea, e.g. U.S. movement to LBS’s and 3G with promise of LTE in the future.
• Data centric mobile platforms and ecosystems are being built for 3G broadband mobile technologies.
• Mobile broadband growth has shifted from developed to developing markets. This will be an enabler for open platforms and smart devices.
• Energy savings as a cost driver, e.g. Nokia’s new innovations to reduce energy cost and carbon footprint.
• Enterprise sales of mobile devices grew 40 to 50% in 2008. Data plans for corporate cell phones, downloaded apps, management and control are attributes of this market segment.
• Location is starting to be combined with other mobile applications and services.

What didn’t happen in 2008

• IMS based services for multi-media streaming
• Mobile advertising didn’t grow as fast as expected
• Network operator monetization of new content has proved difficult
• WiMAX did not take off as expected
• Mobile web 2.0 did not happen as expected

Wireless environment for VCs and Wireless Start-ups

Tim Chang of Norwest Venture Partners opined that, "wireless has become a graveyard for venture capital investors." This was probably because of the inability of the VCs to cash out of their investments with no exit strategy forthcoming. One panelist stated that $45M (average) exit price for wireless start-up companies- a far cry from the dot com boom years. So VCs need to be very cautious. They must carefully consider which wireless start-ups can generate a reasonable ROI and be capital efficient enough to survive on a $3M or $4M burn rate for the next 12 or 18 months.

An opportunity and challenge for VCs is to chose the right technology/ apps for a given country or geographic region. This is because the wireless market is geographically fragmented in terms of how people use data plans and what applications/ services are in demand (e.g. on-line gaming popular in Asia but not in the U.S.). Further, it’s very difficult to get an application to work over a variety of wireless network technologies deployed in different countries.

Tim stated that "channel is everything for a mobile company." That implies that sales/distribution channels must be lined up by the successful wireless start-up for their mobile products in development.

2009 Focus Areas for start-ups and VCs

Start-ups should address users pain points, do more with less, get better efficiencies, avoid bleeding edge (new or uncertain) technologies. For example, SK Telecom is avoiding technology companies pursuing white spaces, as they think there are too many uncertainties and unkowns there.

• VCs will sacrifice top line growth for companies that can reduce costs and fix pain points, e.g. billing.
• Vodafone is looking for companies with "differentiated capabilities for value added Internet services." They are also interested in mobile device innovation, especially screen usability and nex gen human interfaces.
• Sofinnova Ventures sees opportunities in LTE for 4G "all IP" networks. Incumbent providers chose LTE (over mobile WiMAX or other BWA technology) to gain continuity and a graceful evolution from their 3G networks.
• Norwest Ventures thinks WiMAX missed its market window which is now closed. While LTE is quite promising, they think that the Chinese companies may ultimately dominate the device and equipment markets.
• Android in China will be a huge success. China Mobile is planning to give away Android phones sometime in 2009, according to Tim Chang of Norwest.

Postscript: I was not at all surprised to hear nothing positive about WiMAX and only a little about LTE at this VC panel session. But not even unlicensed broadband wireless Internet access for white spaces was thought to be a good investment.

Why? First recognize that in today’s very harsh economic environment, with no VC backed tech IPOs in over 1 year, the VCs must avoid uncertain or unproven technologies, especially for new network infrastructure. They are emphasizing companies that can deliver cost improvements and problem resolution for their customers over the existing mobile networks.

Do you agree or disagree with this approach?