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Five Open Paths in Mobile

October 28th, 2008 Leave a comment Go to comments

There has been a lot of discussion around “Open” as it applies to Mobile, with plenty of expert commentary regarding the definition of Open. But, it seems to me that from the Entrepreneur’s perspective, and therefore for the Venture Investor, the most important aspect of Openness can be summarized as:

I don’t want an overly powerful player, who can cap my upside, between my company and my end customers.

Paths to End Customers

Paths to End Customers


By definition, the delivery channel for any Mobile functionality includes a Mobile Operator, who owns spectrum, has billing relationships with the end customers, and has broad marketing reach.  One can have an interesting philosophical discussion regarding whether or not this is a good thing for society, but the reality is that powerful players in supply chains take advantage of that power for their benefit.  They find ways to bring in your competitors, substitutes, and new entrants; they may even backward integrate to compete with you directly.  An Entrepreneur can rationally decide to work directly with the Mobile Operators, and sell through them, but the path is often a long and costly one.  I have successfully funded great companies like OZ Communications (acquired by Nokia) and InnoPath Software that do precisely this, and it took many years and tens of millions of dollars for each to reach profitable operation.  Alternatively, an Entrepreneur can attempt to side-step the Mobile Operators’ power.  It appears to me that there are five potential Open paths for doing this:

  1. Mobile Browser as the Access Mechanism.  Just as on the PC, a native application can provide a richer/more unique user experience, but there are lots of cases where the browser is good enough, and avoids down-loading an app or involving the Mobile Operator in pre-loading an app.  While today’s Mobile browsers seem limited relative to today’s PC browsers, they are pretty good compared to the PC browsers in place when many of today’s Internet giants got their start.  And, as the Mobile Operators and Handset Vendors respond to the browsing success of the iPhone, the quality of the average Mobile browser is on a rapid improvement curve right now.  As with PC browser based business models, the primary challenge is monetizing the users through some effective form of advertising or direct charging mechanism. 
  2. Voice and SMS as Universal Open Clients.Circuit switched phone calls, and Mobile Originated and Mobile Terminated text messages, are commodity priced in almost all geographies, and are generally free from Operator meddling (despite Verizon’s recent threat to charge three cents per application originated SMS).  Voice and SMS text capabilities are the universal clients in Mobile.  Sure, they have limited functionality, but there are interesting business models that can be built up based on these two types of “pre-loaded clients”, and almost everyone already knows how to use these clients.
  3. Mobile Applications. Just as in the PC environment, there are likely to be situations where an application’s deeper functionality is more important, and others where a broswer-based solution’s broader reach is more important.  If your solution needs to access the camera, the address book, the phone, etc, you need an application (at least, until the Mobile browsers get a whole lot better).  You “just” need to figure out (a) how to live with a business model where you only support a modest sub-set of the phones out there because the long-tail in handset platforms is incredibly long and costly to support, and (b) how to get distribution of your app onto handsets.
  4. End-to-End Mobile Offering.  Unlike the other four paths, this one is generally neither cheap nor quick, but it does afford a path to creating huge franchise value. BlackBerry, iPhone, and the Amazon Kindle are examples where the time, effort, and expense, to bring an end-to-end solution to market have resulted in an offering where the Mobile Operator is essentially only an (important) supplier. The end customer first and foremost buys the specific solution (which may or may not include voice), and generally has an ongoing billing relationship with that solution provider. Line up plenty of financial backing before stepping onto this path!
  5. Live with Operator or Facilitator Based Billing.  The revenue share split may be tolerable, and the host operator may refrain from competing with you forever—or, they may wait for you to work out the kinks and prove the existence of the market, then compete with you.  Premium SMS or the App Store are attractive in that they allow you to get up and running quickly, deal with the difficult billing back-end, and (for the App Store scenario) are a great distribution mechanism.  The question to ask yourself is: “if it looks like I am on a path to building a multi-billion dollar business, what prevents the Mobile Operator (or Steve Jobs) from competing with me, and/or denying me access to my end customers?”  The Mobile Operators eventually learned how to sell Ringtones, much to the chagrin of the third party providers who invented and popularized the idea.