VP of Venture Capital, Pfizer Inc.
Founder and Chairman, Sycamore Networks
CEO and Fund Manager, Renaissance Venture Capital Fund
Chair, Department of Chemical Physiology, The Scripps Research Institute; Co-director, Center for Physiological Proteomics, The Scripps Research Institute
Wade Roush 2/25/11
I always smile to think that we launched Xconomy on June 27, 2007, just two days before the original iPhone hit Apple stores in the U.S. That was a transformative moment in consumer information technology—as important as the launch of the Macintosh in 1984, Windows 3.0 in 1990, or Netscape in 1995. Thanks to Apple, the dam that had held back U.S. mobile innovation for a decade—the wireless carriers’ death grip on handset technology—was dramatically swept away, and Silicon Valley was eventually able to establish itself as a world capital of the mobile business.
As Xconomy has grown up alongside the iPhone and its companion iOS devices, not to mention the alternative universe of Android devices, we’ve naturally been drawn to write about companies exploiting the new free-for-all and making creative use of the amazing new smartphone and tablet platforms. We’ve also hosted a series of annual conferences showcasing mobile innovation and speculating on its future—in fact, the third one, Mobile Madness 2011, is coming up on March 9 in Cambridge, MA.
But our crystal balls are murky at best. There’s only so much we can predict about a business where the technology itself is evolving so quickly and dozens of powerful stakeholders are competing for dominance.
This is the 128th edition of World Wide Wade, and 128 happens to be 27. So here’s my list of seven huge, unanswered questions about mobile—one for each power of 2. In today’s column I hit the first three questions, and next week I’ll explore the other four. If you knew the answers to these seven questions, and you could go out and address the key market opportunities in each area, you could probably become the world’s first trillionaire. (Which actually makes a ticket to Mobile Madness a pretty good deal. For that event, we’ve recruited a stellar group of entrepreneurs and innovators from around the country to help us probe these questions and more.)
1. Who will be the new gatekeepers, and how much friction will they impose?
We know one thing: the stagnation of the early 2000s, when developers couldn’t get new software applications onto mobile handset “decks” without selling their souls to Verizon, Sprint, T-Mobile, Nextel, or Cingular (now AT&T), is over. We have Steve Jobs to thank for that. His exclusive deal with AT&T, though it may have cursed iPhone owners to three and a half years of dropped calls, bought Apple the flexibility to create the iTunes App Store, which opened the way for the Android Marketplace and the other mobile app stores, with all their glorious variety.
The questions now are whether the loosened rules around developer access to smartphone and tablet platforms will persist, and whether the tolls levied by the platform owners will remain reasonable. Apple keeps 30 percent of the revenue on every app, e-book, or subscription sold through the iOS ecosystem (that’s its operating system for iPhones and iPads). That’s a lot higher than its 10 percent margin on songs—but keep in mind that this market didn’t exist before Apple created it. Google also charges a 30 percent transaction fee for apps sold through the Android Marketplace, though it shares its cut with carriers. Microsoft, as far as I can tell, doesn’t charge developers anything to sell apps through the Windows Phone 7 Marketplace—in fact, in many cases it pays them to build Windows Phone 7 applications, as a way of catching up with the Apple and Google platforms. All in all, it’s a great time to be a mobile app developer, as long as you can figure out how to get your app noticed among the hundreds of thousands of others.
But over time, Apple or Google might decide to raise their fees. Or Microsoft might do something silly like banning Windows Phone 7 apps that use open source code. Or important new players might emerge in the mobile-app world, like HP (which hopes to revive Palm’s WebOS) and Nokia (which is abandoning Symbian in a last-ditch effort to rebuild its handset strategy around Windows Phone). The point is that in the post-carrier era, the major mobile platforms are still walled gardens—it’s just a different set of companies manning the gates. It’s going to require an unusual level of enlightenment and restraint on the part of these new overlords to keep the mobile software and services revolution going at its current pace.
Here’s an important sub-question: Where is Facebook in all of this? If the social networking service were to start selling phones to its 600 million users, it could become one of world’s largest carriers virtually overnight. (Even China Mobile has only 522 million subscribers.) Admittedly, Facebook probably isn’t interested in turning into Facephone, but the company’s sheer size makes it the elephant in the room in almost any area of consumer Internet technology.
Facebook has mobile stuff, but no mobile strategy as yet. There are nice Facebook apps for the iPhone, Android phones, and feature phones, and there are even a few “Facebook phones” with dedicated Facebook buttons. The Facebook Places feature added last fall is introducing hordes of people to the idea of the location-based check-in. And the company is working to become a sort of single-sign-on-provider for mobile services from other Web-based companies like Zynga, Groupon, and Yelp. But there doesn’t seem to be any guiding idea behind these miscellaneous efforts. If Facebook ever decides to articulate clearly how it plans to keep growing in a world where most of its members are mobile most of the time, watch out.
2. Open or closed? Can the best parts of the Web—its openness and interoperability—persist in the world of mobile apps?
Last summer, Wired proclaimed that “the Web is dead.” It was hyperbole, but the point was that more and more of the data we get from the Internet is presented to us not through a Web browser but through self-contained mobile or desktop apps like Pandora, Skype, Netflix, and Tweetdeck. For consumers, these apps often provide a cleaner, simpler, better-curated experience than what’s available on the open Web. And for content providers, they’re easier to control and easier to monetize.
But as we hurtle forward into App World, we risk losing some of the architectural features that made Web World so great, such as the ease of content sharing. The Daily, an iPad-only news publication launched a couple of weeks ago by Rupert Murdoch’s News Corporation, provides a case in point. As I noted in my February 4 column, everything about the app (which will soon be subscription-only) is designed to freeze in place the ideas The Daily produces—no circulation allowed. There are buttons that let you post tweets or status updates about articles, but if you do that, the links that you share lead Web users to static JPG screen shots rather than HTML Web pages. These image pages aren’t searchable, and you can’t cut and paste from them, or save the text on Delicious or Evernote, or do any of the other things that have made the Web such a wonderful playground for bloggers and trolls, students and scholars, pundits and plagiarists.
The Daily, as Scott Rosenbaum has so nicely put it, has seceded from the Web. And if News Corporation gets away with it—if audiences turn out to be willing to pay for a publication that is delivered via the Internet but is not of the Internet—then the whole cash-starved news industry will likely try to follow suit, and we could all wind up back in 1993, when finding out what the newspapers were saying every day meant spending hundreds of dollars a year on newsstand copies or subscriptions, or physically traveling to the library.
The question is whether some middle ground exists. Can publishers, game developers, TV and movie producers, and other creators build mobile apps that offer valuable, exclusive, monetizable content and experiences, but do it in a way that still provides for public discourse and fair-use reproduction? Or will it turn out that “social media” is an oxymoron?
3. Can wireless infrastructure providers keep up with demand while keeping broadband affordable?
When you buy an iPhone, an Android phone, a 3G iPad, or a Galaxy Tab, you expect an always-on Internet connection along with it—that’s part of the point. Which makes smartphone and tablet owners enormous data hogs. It’s difficult to find up-to-date statistics, but a May 2010 report from AdMob—released before the mobile ad network was absorbed by Google—showed that Android and iOS users spent an average of 79 minutes per day using mobile apps. iPhone users generated 40 percent of all mobile ad requests worldwide that month, and Android users accounted for another 26 percent. (AdMob didn’t even try to count iPad and iPod touch users.) Thanks largely to smartphones and tablets, overall mobile data traffic is growing at more than 130 percent per year, according to Morgan Stanley.
The current standard for wireless voice and Internet access, 3G, has been around for nearly 10 years. It’s capable of respectable speeds—here in San Francisco, I usually get about 3 megabits per second on my iPhone or iPad on a 3G connection. But that’s barely adequate for bandwidth-intensive applications like streaming video or two-way video calls. Now think about how many people will be using such applications in the near future: analysts expect consumers worldwide to buy 60 million to 100 million iPhones this year, 30 million to 45 million iPads, and probably equal numbers of Android smartphones and tablets. Something has to give.
To deal with complaints of slow data connections and dropped calls, AT&T spent much of 2009 and 2010 upgrading the 3G equipment in all of its cell sites from 3.6 megabits per second to a standard called HSDPA, capable of 7.2 megabits per second. (AT&T also said it was adding more “backhaul” capacity—the fiber optic networks that carry data to and between cell towers.) AT&T’s main competitor, Verizon Wireless, uses its own 3G technology, EVDO, which peaks at about 3.1 megabits per second. But neither EVDO nor HSDPA is great for video or for simultaneous voice and data transmissions.
That’s why the industry is looking for alternatives. One may be to offload 3G traffic in densely populated locations to shorter-range but higher-bandwidth Wi-Fi networks. Back in November, I wrote about Ruckus Wireless, a Sunnyvale, CA, company that has a lot of ideas about how to do this, and they’re one of the companies that will be sending an executive to Mobile Madness. But the only long-term alternative is to move to the next-generation cellular wireless standard, 4G.
Both AT&T and Verizon have settled on a version of 4G called LTE, for Long Term Evolution. Verizon leapfrogged AT&T by rolling out LTE to 38 U.S. cities in December. AT&T expects to start field-testing its own LTE network later this year. Then there’s WiMax, which is technically very similar to LTE but divides up data differently; championed by Intel and Sprint, WiMax is being brought to market in about 80 cities by Kirkland, WA-based Clearwire. WiMax is technically capable of speeds up to 72 megabits per second, and LTE peaks at a mind-blowing 300 megabits per second, but in practice both technologies are far slower: Early Verizon LTE users are reporting speeds around 10 megabits per second, in the same range as a home cable modem. Clearwire says that its CLEAR service averages 3 to 6 megabits per second.
So LTE and WiMax are both faster than 3G, but their speed falls off drastically as you move away from the transmitting tower. Which means the operators have to build more transmitters—which means 4G service is pricey. Clearwire delivers unlimited data to USB modems and home and portable Wi-Fi routers for $35 to $95 per month. Verizon sells LTE USB modems for $100 and charges about $10 per gigabyte of data transmitted.
Considering that a single 43-minute-long standard-definition TV episode runs about 600 megabytes, Verizon’s version of 4G clearly isn’t priced to encourage mobile media consumption. Even if the iPhone 6 or the iPad 3 were to come with LTE chipsets, in other words, you’d want to be within range of your home Wi-Fi network before downloading a movie or a bunch of apps. Clearwire’s version of 4G doesn’t have caps or per-gigabyte charges, but then it’s not really mobile—it’s intended for laptops and home networks, and so far there’s no such thing as a WiMax mobile phone or a WiMax tablet.
So we’re in one of those in-between moments when our gadgets and the things we want to do with them have outstripped the old infrastructure they depend on, but the new infrastructure is incomplete and prohibitively expensive. Maybe 4G networks will have so much extra capacity in the early days that operators will be forced to lower their per-gigabyte prices to draw users in—but if mobile traffic keeps doubling every year, then even the 4G networks will soon be as clogged as today’s 3G system, and prices will go back up. There’s likely to be ongoing tension between the network operators, who have to ration the spectrum, and the platform owners like Apple, who just want to sell content. And we consumers will probably stay caught in the middle, no matter how many Gs we have.
To me, one thing seems pretty clear: the changes wrought over the coming 10 years by mobile devices are going to be even more far-reaching than those we’ve seen over the past 20 years from desktop and laptop PCs. The shifts in the ways we communicate, learn, shop, travel, and do business might not be as starkly noticeable as the last time around, since the Internet, which was insignificant before the PC era, is now an important constant tying together PCs and mobile devices. Even so, we’re talking about order-of-magnitude increases in the number of people affected, the new capabilities afforded, and the amount of money to be made.
To grapple with those changes and their implications, Xconomy pauses every spring for a half-day conference on mobile technology. The third edition, Mobile Madness 2011, is coming up on March 9. I’ll be emceeing much of the program, and as part of my prep work I started a two-part column last week on seven of the key unanswered questions about where the changes will be most dramatic and about the kinds of opportunities that are being created for mobile innovators and entrepreneurs. Today it’s time for Part 2.
The industry leaders speaking at Mobile Madness obviously know a lot more than I do about these subjects; my hope is just to provide some starting points for conversation. In Part 1 I asked who the new mobile “gatekeepers” will be, in an era when the wireless operators no longer have so much control over the software running on the phones they sell; whether makers of mobile apps will adopt Web-style principles of openness and sharing; and whether wireless operators will be able to provide basic infrastructure like faster, 4G broadband at a price low enough to encourage ongoing innovation. Today I’ll cover four more topics, including mobile commerce, enterprise adoption of mobile, geolocation, and what a “post-mobile” world might look like. If you’re in Boston on March 9, I hope you’ll join us for the afternoon at Microsoft’s NERD Center and help keep the conversation going.
(Why seven questions rather than six, or ten, or 50? I admit it’s a bit of a gimmick. Last week’s World Wide Wade column was the 128th in the series, and 128, for you non-math-geeks, is 2 to the 7th power.)
4. How will physical, bricks-and-mortar commerce evolve in response to mobile technology?
It almost goes without saying that the rise of the desktop Internet shifted the information balance in favor of consumers and citizens. All sorts of data that used to be difficult or impossible to find—from airline schedules to the weather in Antarctica to the locations of toxic waste sites—became easily accessible online. Unfortunately, as soon you left your computer and went out into the real world, the balance shifted back again. Only the airline could tell you how long you’d be stuck in the terminal; only the Best Buy clerk could tell you how much a Samsung TV should cost, or why it was better than the Sony model.
Internet-connected mobile devices are now extending consumers’ information advantage into every setting, including stores. The dumb retailers will perceive that as a threat, seeing only how easy it is for a customer to walk into a store, scan the barcode on an item with their iPhone or Android phone, use an app like SearchReviews to find dozen product reviews written by other consumers, and then order the item for 30 percent less from Amazon. The smart retailers will see mobile as an opportunity, figuring out ways to reach consumers on their devices with relevant and timely information, offers, and services.
One of the most interesting testbeds for a lot of new mobile services is your neighborhood grocery store. Last fall I wrote about a Bay Area startup called ShopWell whose free iPhone app lets you scan food packages, then call up personalized nutrition labels highlighting the ingredients that might be unhealthy for you, depending on your profile. You might think that would upset food producers—but in fact the company says food companies will pay for ShopWell’s data about what users are scanning and buying; it could turn out to be a far more accurate form of market research than traditional focus groups. ShopWell also plans to offer stores and food brands marketing services such as personalized coupon distribution. They call it a win-win.
Quite a few other companies, such as Cellfire, Modiv Media, and SavingStar, are also entering the mobile coupon business, with the goal of sending you discount offers at the precise moment when they’ll be most enticing—when you’re deciding what to put in your shopping cart. And once you’ve filled your cart, there are plenty of companies who want to help you pay for your purchases; AisleBuyer, for example, has iPhone and Android apps that let you scan items, pay for them securely from your phone, and walk out of the store without waiting in the checkout line. Companies like FaceCash, Fig Card, and Bling Nation are working on working on their own ways to use mobile software and hardware to replace cash and credit cards for in-store purchases. (AisleBuyer CEO Andrew Paradise, Modiv Media CEO Mike Grimes, SavingStar president Mike Libenson, and Fig Card CEO Max Metral will all be on hand for a Mobile Madness chat on mobile commerce.)
While it’s not clear yet if your mobile phone will ever become your uber-electronic-wallet, retailers who want to please their best customers should be experimenting with these technologies. The big picture is that mobile devices are helping shoppers save time and make smarter choices. The tool providers themselves will probably be the biggest winners, but who knows—the bricks-and-mortar retailers who adapt to the changes most enthusiastically might just find that happy, informed customers spend more.
5. How much of business IT can be “consumerized” and replaced with cloud services and employee-owned mobile devices?
It used to be that the technology you used at the office was far more powerful than the technology you used outside it; after all, you didn’t see many suburban homes in the 1960s with an IBM 360 mainframe in the living room. Connection speeds at the office used to be a lot faster too—that’s how the whole “Cyber Monday” phenomenon evolved in the early 2000s, as people waited to get to work on the Monday after Thanksgiving to start their online Christmas shopping.
Mobile has changed all that. Now the Android phone in your purse or the 3G iPad in your briefcase is probably one of the most sophisticated, versatile pieces of hardware in your whole office. So why shouldn’t it become the platform for more of your actual work?
There’s been a lot of talk about the consumerization of enterprise IT—by which people usually mean simplification, the replacement of bloated, expensive, server-based software with user-friendly, easy-to-install, cloud-based services. Salesforce.com’s success undermining Siebel in the area of sales automation software and Box.net’s assault on Microsoft’s SharePoint document sharing system are great case studies. That’s still an important trend, and it’s actually being accelerated by mobile devices (Box.net has a great iPad app, for example). But I think something broader is in the offing: the potential consumerization of the whole office, down to the hardware on your desk. We may be entering the era of BYOT—bring your own technology.
Corporate IT departments will always need a few people around to keep the company network running. But chances are you make a lot of business calls, do a lot of work-related searches, or navigate from sales call to sales call on your own smartphone. You do a lot of you work on your laptop—you probably own that too, or you might as well given that you probably manage all the software installed on it. And if you use an iPad or some other tablet to keep up with the latest work-related news or social media activity, it almost certainly wasn’t a gift from your company.
In other words, employee-owned devices are infiltrating the workplace whether companies like it or not—and given how attached most people are to their mobile gadgets, the trend isn’t likely to reverse. So the question is how companies should respond.
Most, so far, are in defensive mode, focusing on security and compliance challenges. Providers like Zenprise have come up with software that makes sure every iPhone, iPad, Android phone, BlackBerry, or Windows phone that employees bring into the building has the latest security features, and that they can be remotely wiped in case of theft or loss to prevent data breaches. (Enterprise Mobile provides similar services for companies that choose to purchase and deploy their own fleets of mobile devices, and CEO Mort Rosenthal will be at Mobile Madness to talk about that.)
But I think there’s a lot of room for new software and services that would help companies be more proactive about the BYOT trend. There ought to be business-optimized versions of the basic communications functions on smartphones and tablets, such as e-mail and voicemail management. (Obviously Research In Motion has a lead here.) There ought to be more apps that connect employees to existing enterprise applications like CRM, ERP, and business intelligence systems. In sum, there ought to be more technology to help workers stay productive whether they’re at their desks or in the field—and to serve that need, there should be a whole business or professional section in the iTunes App Store and other app stores (or at least a way for companies to set up their own stores).
At Mobile Madness, we’ll be hearing about interesting examples in each those areas, from Apperian chief strategy officer Chuck Goldman, Ondeego CEO Ken Singer, and MeLLmo founder and chairman Santiago Becerra.
6. What matters most about context and location data? Is it a business or just a feature?
Let’s face it: the novelty of geolocation is wearing off. Yes, your smartphone knows your latitude and longitude at all times, and can pass this information to apps that keep you oriented or give you localized search results or let you check in at your favorite cafe. Now what?
I don’t mean to sound jaded—it’s taken a tremendous amount of innovation and hard work to get us to this point. On the infrastructure side, we’re all beneficiaries of the billions spent by the U.S. defense establishment to build the Global Positioning System. The tiny, low-power GPS chips built by companies like Qualcomm and Broadcom are modern wonders. Beyond GPS, Skyhook Wireless and Google have worked to make sure that our phones can get a good position fix based on Wi-Fi signals (as it happens, those two companies are locked in a couple of nasty lawsuits over the technology). Companies like Facebook, Foursquare, Gowalla, and SCVNGR have built entertaining social and game layers over the location data, while Life360 is using location to help family members keep better track of one another, and Where has built a mobile ad network that reaches tens of millions of mobile users.
But I can’t help wondering what comes after local search and check-ins, and whether place by itself is a solid enough substrate for successful businesses. There’s certainly a commercial role for providers of geolocation infrastructure like GPS chipmakers and Skyhook. But I have a feeling that, ultimately, location awareness will be thought of as a feature, not an application unto itself. It will be part of the background in the majority of mobile apps—playing a supporting role, not the lead.
To understand what I’m saying, consider the fate of an earlier technology once considered hot: server push, in which a central publishing service initiates a communication. You may remember PointCast Network, one of the highest-flying dot coms of 1996-97. PointCast used then-novel push technology to deliver news, information, and ads to a Windows PC screensaver program. PointCast was so buzzworthy that Wired magazine put the technology on its March 1997 cover, declaring that it was time to “kiss your browser goodbye.” Not to be outdone by PointCast, both Microsoft and Netscape rushed to build push features into their browsers. At the height of its fame, PointCast fetched a stunning $450 million purchase offer from News Corporation. Then it all came crashing down. Corporate IT departments banned the program for using too much bandwidth. Consumers didn’t like all the ads. News Corporation withdrew its offer. PointCast’s founding CEO was kicked out, and by 2000 the company had folded.
Yet the push model lived in on many subtler ways. It’s the foundation of instant messaging and e-mail systems like Microsoft Exchange and the BlackBerry network. There are provisions for push publishing in the new HTML5 Web standard, and in 2009 Apple added push notification technology to the iPhone’s operating system. In other words, push is recognized today as a useful technique in many situations—but on its own, acting as nothing more than the scaffolding for a few news headlines and ads, it didn’t make a very strong product.
I think geolocation will turn out to be the same kind of technology. But right now we’re still in the phase of exuberant exploration in the location business, with quite a few startups testing whether they can build reliable revenue streams on the simple fact that your mobile phone lets you easily determine and share your location. My bet is that location will ultimately be seen as just one of many types of environmental inputs that smartphones can detect, along with light and images, sound, movement, pressure, and of course, radio communications.
I think that’s why the buzz in the technology world about location awareness is already fading a bit and giving way to broader conversations about context awareness. To take a crude example, your phone shouldn’t simply know that it’s at 37.78 N, -122.40 W; it should know that those coordinates are in a movie theatre, and that there’s a movie playing, and that it should automatically set its ringer to vibrate.
Of course, I could be all wrong. In any case, we’ll have some great people on hand at Mobile Madness to debate the point in a “location smackdown” session, including Skyhook CEO Ted Morgan, Where CEO Walt Doyle, SCVNGR senior vice president Chris Mahl, Going.com director of business planning Roy Rodenstein, and Locately chief technology officer Drew Volpe. The inimitable John Landry will referee.
7. What comes next? What’s beyond mobile?
I won’t waste too many words trying to answer that question—if I knew, I wouldn’t be working as a lowly journalist. But I think my colleague Greg Huang was basically right when he wrote yesterday that “mobile is becoming redundant: in technology, everything is mobile…Every company and every tech entrepreneur is touched by this revolution.” Pretty soon, we won’t need to talk about mobile phones or mobile commerce or the mobile Web, because all phones will be mobile, and all commerce will be mobile-friendly, and regular Web pages will look just fine on mobile devices.
If you look back at the last four or five waves of innovation in information technology—mainframes, minicomputers, PCs, the desktop Internet, and the mobile Internet—there’s a cycle time of roughly 10 years. We’re already a few years into the mobile wave, so it’s reasonable to expect that by 2025 at the latest, we’ll be moving on to the next big thing. What will that be? My own guess is that something a little bit paradoxical will happen.
Just at the moment when it finally seems that all computation is mobile, computers will disappear altogether. They’ll sink into our desks, walls, and dashboards, and maybe our corneas and eardrums. Our homes, offices, and vehicles will all be able to talk with us, and we’ll have implants that project digital data across our entire perceptual field, giving real meaning to the phrase “augmented reality.” We’ll probably all have personal AIs—the descendants of Jeopardy! champion Watson—that supplement our memories, manage our schedules, answer our questions, and keep us safe. Eventually, we’ll look back and think it was funny that we ever had to funnel all of our interactions with the global computer cloud through the little chocolate-bar-sized computers in our hands. Science fiction? Right now, yes. But back in 1996, who would have believed that something like the iPad was possible?
It’s all far more than we can address at Mobile Madness. Which is why we’re already working on another Xconomy event, to be held in Silicon Valley later this spring, looking at the future of computing after mobile. Watch this space for the details.