WCA (Wireless Communications Alliance) held their 12th annual “What’s Hot (and What’s Not) in Mobility 2011” event on November 16th in Santa Clara, CA. A panel of venture capitalists shared their opinions and offered predictions on a wide range of topics and issues decided by the moderator. The emphasis was clearly on the consumer market for mobility services and applications. There was very little discussion of the mobile enterprise, industrial wireless markets (like M2M or smart grid) or the actual wireless network -both access and backhaul- that enables all the new services, apps and business models.
Abstract (provided by WCA):
We remain in a time of unprecedented growth in mobile applications and services, yet investors are hard to come by, fundraising is down, deals are as few as exits, and portfolio companies are requiring investment that might in other years seed new ventures. In this environment, at the 12th edition of our annual center stage investors panel, we will once more ask the mavens who make the bets where the smart money is going in mobility and what trends, opportunities, and pitfalls they foresee next year and beyond.
— Carrie Walsh, Managing Director, Silicon Valley Bank
— Eric Zimits, Managing Director, Granite Ventures
— Juha Christensen, Partner, Progression Partners
— Steve Goldberg, Partner Venrock
— Rama Sekhar, VP, Norwest Venture Partners
— Tae Hea Nahm, Founding General Partner, Storm Ventures
Highlights of Panel Discussion and Q &A
The moderator asked each panelist to provide a quick overview of their company, especially with respect to investing in the mobile market:
- Granite Ventures is an early stage VC firm. They spend a lot of time evaluating wireless companies for possible investments.
- Progression Partners invests in only one or two companies per year, but gets directly involved in helping them grow their business.
- Venrock is a 42 year old VC firm, formerly the “investment arm” of the Rockefeller family. They invest in energy, health care and technology.
- Norwest Venture Partners invests in both enterprise and consumer sectors of mobility.
- Storm Ventures has done very well investing in mobile start ups, except for Fixed Mobile Convergence (which hasn’t realized its promised potential)
This was followed by panelists’ observations on the mobile market. Here are selected statements and comments:
Non telcos like Google, Apple and Facebook have “jumped into the fray” and are monetizing various aspects of the mobile ecosystem. They are making more money off mobile than the wireless service providers who build and maintain the network.
Christensen: Location based advertising, e-commerce, and social networking are being integrated into the mobile world and they offer a lot of potential for revenue and profits. Moving forward, the industry may adopt a “cost per action” model, e.g. service provider gets $1 if mobile user goes to Starbucks (or other store) because of a location-based advert.
Mobile gaming is and will be a huge force with much potential and promise. We are just scratching the service.
Zimits: Tide has turned for LTE with Verizon’s aggressive deployment. They (and other LTE network providers) will now minimize investments in 3G. In fact, the need for 3G mobile data offload will disappear as LTE becomes wider deployed (Editors Note: many experts disagree with this last comment).
Goldberg: Disagree! We’re only half way through 3G deployment with mainstream LTE a good 5 years away. More importantly, the wireless infrastructure and hardware business is as hard as it has been for the last 10 years! It is very difficult for start-ups to make money in this space.
Mobile device vendors are catching up with Apple. Samsung shipped more smart phones in the last quarter that did Apple.
Surge in mobile data traffic continues, which is unsustainable. Korea experienced a 20x increase in mobile data traffic during the last year!
Companies are now letting employees use their own mobile devices for business purposes. Bring Your Own Device (BYOD) to work is a potential big opportunity for start-ups and innovation. The mobile workforce will only grow larger. (Editors Note: no discussion of vertical markets for the mobile workforce/ mobile enterprise).
Mobile and non-mobile worlds are rapidly converging. People are looking for the same experience on multiple screens, e.g. PC/notebook, tablet, smart phone, TV and even car screen.
Companies in the LBS (Location Based Services) space are having trouble when mobile users are within buildings. It is a technical challenge to provide accurate X-Y location coordinates in buildings, especially with GPS.
An equally important LBS issue is what services to push/ promote when the user’s co-ordinates have been established. Privacy is an extremely important concern for location tracking. However, users may be willing to permit that in exchange for “compelling offers,” which would cause them to change their behavior patterns.
Moderator: What is the impact of “4G?”
The LTE deployment model creates the opportunity for smaller cell sites at street level to drive spectrum re-use (Editors Note: Why is this unique to LTE? Why can’t we have smaller cells/base stations for 3G to facilitate spectrum re-use over a given geographical area?). Claim: we need closer cell sites along with the array of smaller LTE capable base stations and nano cells.
Editors Note: How to assign/ re-assign mobile subscribers to a base station/cell was not discussed. Neither was handoff when a subscriber moves from one small cell site to another. Neither was backhaul from the many smaller base stations to the ISP/ long distance carrier POP.
LTE coverage may also be an issue, with fallback to 3G when LTE is not available in a given area. (Editors Note: Handoff between LTE and 3G was not discussed).
Goldberg: But a bigger challenge may be to use the functions that already exist in a 4G smart phone. That is partially due to having to turn various functions off to conserve battery life (e.g. turn off GPS and WiFi cause they use too much power which drains battery).
Sekhar: We should not forget about 2G and SMS in developing countries! Norwest spends a lot of time in India where there are 800 mobile devices (not smart phones) on prepaid billing plans. The apps there are based on SMS (text messaging). We should “pay attention to the fat tail.” (Editors Note: This is also true in Africa, with Kenya’s M-Pesa mobile payments via SMS- more below).
Zimits: LTE is now in the forefront with “WiMAX fading fast.” Mobile network operators like Verizon are going “full blast” to deploy LTE. However, there is no common frequency band plan for LTE. There are also two different methods to separate send and receive traffic- FDD (mainstream) and TDD (favored by Clearwire and certain Chinese operators). This may create opportunities.
There is tremendous momentum behind LTE. Betting against it would be like betting against IP, Ethernet or WiFi. However, timing is still questionable. When will LTE really go mass market with good coverage? 3G was available since 2003, but really didn’t take off till 2007 when Apple introduced a 3G iPhone. When LTE goes mainstream is anyone’s guess at this point.
Critical LTE need now is for service creation that will take advantage of the huge increase in bandwidth provided. Who will realize the value and make money off the new LTE based services? Probably will not be the carriers!
Near Field Communications (NFCs), e.g. Google Wallet, still seems to be a good three years away from becoming a mass market/ revenue producing business in the U.S. In the meantime, Starbucks is using bar code reading (Q-R codes) on smart phones for payments at check out.
Nahm: But NFC is widespread in Asia (e.g. Japan). NFC is a matter of when, not if [Author’s note: NFC has nothing to do with mobile networks. It is a very short reach wireless link between a device and a reader].
Meanwhile, there are tremendous opportunities in India and Africa for mobile money transfers via SMS. Mobile payments are already happening in Kenya with M-PESA. Banks and cellular carriers need to co-operate to make that happen in a big way.
Virtual goods are generating a lot of money for mobile game providers (e.g. Zynga). They account for 76% of all app store purchases (Christensen). There is a growing perception that a virtual good is a real good. But these sales are dominated by “whales” who spend a tremendous amount of money ($20K) buying virtual goods from app stores.
Augmented Reality (AR) is another interesting technology. Layar on iPhones was cited as an example, but it is hardly used.
Goldberg: Augmented Reality is a technology looking for a home. AR depends on a very accurate GPS fix, which is holding off broader deployment. You also have to turn camera on and off to conserve battery life. In summary, AR is waiting for more killer apps. “Now you see it, now you don’t.” It will be up to the creativity of developers and their ability to monetize those apps.
Mobile Gaming technology could potentially be applied to e-commerce, mobile health care and other vertical industries. When this might happen is anyone’s guess.
Mobile Health Monitoring technology has been around for a long time, but there are logistical problems that have prevented widespread use. These include a cumbersome health care infrastructure, insurance and payments system.
Apple, Google and Amazon will dominate mobile music industry. They will sell music, movies and books that are resident in a user’s personal cloud, which has to be secure, safe and private. Amazon’s integrated ecosystem will make it difficult to be a competitive on line, media distributor.
Cloud Security concerns are huge for both wireless and wireline cloud access. Many startups are working in that space. Privacy will also be a big issue, especially for LBS’s and mobile health care.
The Android ecosystem is exploding. Google hopes to monetize Android primarily through mobile search ads. But, (unlike Apple’s IoS) Android piracy is rampant.
Huge movements in spectrum use may be disruptive. Some technologies to watch include; Software Defined Radio (SDR), Cognitive Radio, and frequency hopping.
Goldberg: Overall control of wireless backhaul is a key issue, with network management playing a vital role. The problem is how to, “Globally optimize end-to-end performance.” It is a combination of backhaul and management policies, according to one panelist.
(Editors Note: the technology for backhaul was not discussed. Those include fiber optics, point-to-point microwave, Ethernet over copper, millimeter waveguide (in the 60 GHz band), Free Space Optics and other wireless alternatives.)
Any start-up opportunity in the integration of multiple radio technologies and/or antennas for each one? Not likely! Apple and Qualcomm, which use proprietary internal interfaces, control Smartphone platforms. Hence, it is very difficult for a start up RF venture to make money on antenna farms or multiple radio technologies. Handset vendor component and module suppliers will design and produce those technologies.
Comment and Perspective
The moderator’s list of questions seemed to be exclusively focused on the mobile consumer market, at the expense of enterprise mobility or industrial wireless markets like M2M or Smart Grid outdoor wireless networks. We were very surprised by these ommissions, especially since Apple is now keen on the enterprise wireless market. The NY Times reports, “During recent earnings calls with analysts, Apple executives have boasted about the portion of Fortune 500 companies testing or deploying iPads and iPhones — 92 percent and 93 percent, respectively, Apple said last month.”
Perhaps, because there is little or no new opportunities for start-ups in wireless infrastructure (Goldberg), there wasn’t much discussion of what’s needed from the wireless network to enable the new mobile applications and services, e.g. location based advertising, mobile social networking, mobile gaming, augmented reality, etc.
All we heard were that smaller LTE base stations/cell sites were needed for spectrum re-use. Won’t those be produced by the existing base station equipment makers, e.g. Ericsson, Alcatel-Lucent, NSN, Samsung, Huawei, etc? Or, will those larger enttities be willing to subcontract pieces of the design to start-up companies with innovative and intriguing technologies?
In particular, the issues I was interested in were not addressed:
- Redesigning the wireless access network topology to accommodate nano cells. This involves co-ordination and control with dynamic assignment of subscribers to cell sites, particular as they transit from one small cell site to another. Minimizing interference from adjacent base stations is another unresolved issue. Self Organizing Network (SON) technology will play an important role here.
- Microwave/millimeter wave vs fiber backhaul for 3G/4G. How can each subscriber get 5 to 7M bit/sec (advertised LTE downstream rates) when the total backhaul link is only 100 M bit/sec (or less)? That pretty much eliminates nxDS1, DS3, or Ethernet over Copper based backhaul for LTE access networks.
- Mobile data offload to very large hot spots, city wide in some cases. According to Heavy Reading, “Public access hotspots are the most approachable Wi-Fi opportunity for mobile operators. Operators are attracted to the hotspot market not because it fundamentally changes their economics or value proposition, but because it is an actionable opportunity. Subscribers see clear incremental benefit from having Wi-Fi bundled with their data plans, and operators can ensure reasonably predictable performance and add value for users via capabilities such as auto-login using SIM authentication.” Towerstream is doing this in NYC metro area. Please see: Metro WiFi Reborn: City Wide Mega-Hot Spot for Mobile Data Offload
- Outdoor wireless mesh networks for M2M and Smart Grid Communications. We think this area has much potential and promise. Competing technologies include mesh WiFi (IEEE 802.11n), WiMAX (fixed or mobile), LTE, and proprietary (e.g. Motorola Canopy)
- Status and outlook for Femtocells. Has the hype lived up to the actual business? Any opportunity for start ups here?
- Integration of location, social networking and mobile (briefly touched on but no specific take aways). What’s needed to successfully merge location with social networks? And what about privacy issues related to location tracking? Is it location based advertising that a user finds compelling enough to tell his or her friends about it? Something else?
Clearly, the panelists believe that the value of the services and applications made possible by mobile broadband are much greater than the value of the actual wireless network. And the opportunities for start-ups seem to be much better in that area than in wireless infrastructure. We think there’s a lot of opportunity and fertile ground in the integration of location, social networks and advertising. We are also optimistic about mobile health care, especially patient monitoring and prevention of heart attacks or other diseases.
Ken Pyle summed this up quite eloquently: “Wireless broadband is truly like a utility – like electricity is in that the applications electricity enables cumulatively are much larger than the electricity business. Maybe that’s a healthy sign in the sense that broadband is just a tool to make the rest of the economy more efficient and that its cost is becoming small relative to the value it creates. ”
While we completely agree with Ken, we wonder how the network operators (who must continue to evolve their networks to meet the explosive demand for mobile data traffic) can make money off the mobile broadband network that so many entities are successfully monetizing. They have so far been excluded from the mobile ecosystem value creation chain, despite their network being the base of the entire mobile ecosystem.