The coffee shops of Mayfair

Apple is the evil empire, stupid

The iPhone will be the nail in the coffin for Apple's credibility.

I have hated Apple ever since I tried to get AAC files to work on a new MP3 player, then a new pc.

I hated Apple even more when I tried to play iTunes tracks in an opensource media player.

Lock-in! Proprietary formats! No flexibility! The bastards.

Yet I was a voice in the wilderness. Whenever I asked either developers or other consumers they loved Apple.  The iPod was a piece of achingly beautiful design. Steve Jobs was cool.  Macs kicked Microsoft's proprietary ass.

The iPhone is changing everything. Developers are beginning to hate Apple and I think consumers will be next.

What's the problem with iPhone?

Mike Arrington at FOWA was half way there today when he said Apple is pissing people off by limiting them to one network.

I think there's a much bigger problem. The genius of the iPhone is that it provides an interface for people like my dad to access and use mobile apps. The problem is how hard it is to do this.

Great technologists like Sutha  are livid that developers can't even officially write to the OS X layer.  They're officially limited to a not-so-rich web-browser in which they can build very simple apps, but that can't take advantage of any of the power of the iPhone. These apps can't run offline, can't take a
peek at your address book, or anything else. They certainly can't do any of the slick graphical things that are making people generally salivate over the iPhone.  You CAN create native OS X apps that do much more but this means hacking the iPhone.

So my dad can have some widgets but they're not really useful.

In essence Apple is going against all the principals of openness and interoperability that so dismays developers and eventually consumers.

And now hallelujah! People are starting to dislike Apple. I am pleased for two reasons:
1)Wonderful opportunities for entrepreneurs.
2) Finally I feel vindicated ;)

Mobile and Multimedia: Do new mobile revenue streams present opportunities for venture capital?

We ran the second in seminar in a series looking at the web and convergence.

We wanted to focus this one on investing in mobile applications: multimedia over mobile is ticking up and convergence trends suggest that consumer want content irrespective of device or platform.

Here is a resume & semi transcript of the event:

On our panel was;

• John Yeomans, Director of FirstCapital
• Voytek Siewierski, Senior Vice President of DoCoMo Europe
• Charles Grimsdale, General Partner of Eden Ventures
• Patrick Parodi, Chairman of the Mobile Entertainment Forum

A wave of venture investment was made between 1998 and 2002 in the expectation that mobile applications and services would become the next engine of mobile revenue growth. Disappointment ensued as the market did not develop as fast as most had hoped or expected. However the sense is now that the tide has turned. Ring tones alone have become a $3bn market worldwide. Mobile data and applications are growing by about 20% per annum, and outside of the more established texting part of the market, the growth rates average around 40% pa or more.

John Yeomans of FirstCapital opened the seminar by stating that the nervousness in the minds of many VCs over the financing of mobile applications was for several reasons:

• more than most other areas of technology, telecoms came through more slowly than expected in the period 2001-2004; operators particularly cut back their capex; 3G took its time.
• small, venture backed companies could not control the end customers experience, which depends on the handset, the mobile operator and on the venture business' service.
• the industry structure, where most small venture businesses in this field, are constrained to dealing with about 500 large operators as customers.

However, he went on to suggest that things were looking up "the industry is into its next wave of development" with fast 3G roll out now underway, and High Speed Data services getting closer, giving a mobile phone the speed of a fixed broadband connection. For venture companies, he highlighted perhaps the most significant development as a large number of potential new customers, in content providers. With a whole new class of applications like content delivery; mobile data; streaming audio; video clips and even a mobile TV channel, the 'traditional' providers of content like Warner Music, EMI Music, and Paramount Pictures are joined by new entrants, ranging from Premier League Football Clubs to FT.com. More people to sell to, potentially unblocks the bottleneck in the industry structure, with a small number of large operators driving the whole market.

He identified a number of pre-requisites to achieve the goal: data services that work; service providers who know how to sell them; flexible billing and charging options; and still more attention on service integration.

In closing John categorised venture businesses in this field into three classes:

• the first wave, involving businesses such as iTouch (one of the biggest players in the field in the UK sold for an estimated £180m to For-side of Japan, which also recently bought Zingy and Vindingo in the US in a series of acquisitions creating a global player) and Bango, which is floating. He highlighted examples of this trend continuing, including Sorrent of the US, who joined with Macrospace to form Glu Mobile earlier that week. In general these businesses involve B2C type sales to end customers, with products including ringtones, games and consumer marketing.
• the second wave, typically platform plays and middleware providers, both of which provide server or handset platforms to support applications and simplify their development. Ongoing financings are prevalent here, at least for the players who have gathered market momentum. In the UK in the last 18 months, there have been 18 wireless and cellular financings, 9 of which were in the field of mobile applications. Of these 7 were platform players like mBlox or middleware players like SurfKitchen.
• the third wave, of start ups in new application areas. The range is wide and these are only starting to enter the VC market, but applications are in the new multimedia areas like audio and video streaming, management of content libraries, etc.

Voytek Siewierski of DoCoMo Europe focused on the importance of mobile operators in acting as an enabling platform, to allow venture capital backed companies and particularly mobile content companies to flourish. He highlighted the very good clusters of innovative, promising companies that develop content for mobile phones, which in most cases have been kept away from the consumer by mobile operators.

He went on to suggest that outside of SMS, the mobile data market in Europe is yet to be built, which is predominately due to the ambition of the mobile operators to control the entire value chain, arising from the simplistic belief that they control the customers. He asserts that operators in Europe have only a small window of opportunity left to generate revenues from the mobile data market but they can only do it by enabling other companies. He said "Operators must understand that they have to create a third party friendly ecosystem, create an open gate to other networks and then they should take a lead in mobile centered community. If they don't do it others will". In support of this assumption, he cites the success of DoCoMo's wireless internet portal i-mode which has 45 million subscribers: 90 % being active users. This generates revenues for both the operators and also the third parties, through a positive feedback virtuous circle, whereby the more content providers there are, the more customers come to the platform, creating a self profit mechanism.

Charles Grimsdale of Eden Ventures focused on the problems of the digital media market, which has been a difficult but not impossible market. Charles suggested that the peer to peer phenomenon created a tough environment for anyone trying to sell digital media today; the low price point of $0.99 per song creates a very low margin business, which may cause huge problems for record industry and retail in the future. He highlighted that when the transition occurs within the mobile space the mobile operators and content providers are going to have to increase the price to the consumer or the market will remain challenged. He went on to propose that the market has also been hindered by a lack of DRM standards, which makes content owners reluctant to release their content. However, he recognised that the introduction of OMA v2.0 could make a huge difference to the market, where by most of operators and device manufacturers have got behind it, creating a platform upon on which content providers can build a business, with a common infrastructure.

• Devices and operating systems are becoming very sophisticated - so the possibility of creating native applications, very high performance applications, native games and media applications to run on these devices, starts to become more realistic. There has been some consolidation in the operating system world, starting to think about deploying one application across multiple devices is becoming more realistic, but it's still a challenge, albeit more realistic.
• We are seeing mobile phone and consumer electronics convergence - consumers only want to carry one device - want to store, photos, music, games, video.
• The challenge that introduces is that not all of the media is going to be download over the operator's network: the vast majority will already be sitting on someone's PC. We need to approach how we are going to get that content onto the phone seamlessly.

Patrick Parodi of Alcatel, and Chairman of Mobile Entertainment Forum

• The Mobile Entertainment Forum is seeing a shift from being focused on games, messaging, to music and now to the mobile video space. The objective of the MEF is to accelerate the growth of the mobile entertainment industry, by getting the traditional entertainment industry companies to embrace it and recognize it as a place that's safe for them to generate revenue.
• We are still at the tip of the iceberg, even in the ring tone business - still a lot of revenues to be generated - download separate ring tones for each contact. The ring tone business needs to be tracked, e.g. through the ring tone chart which was launched in 2004, with the intention of showing record labels and publishers that it's not a fad.
• There is a 3 billion dollar gap between where the operators are today in terms of value generation, and what people are generating in terms of revenue from mobile content itself. That gap is going to increase because these handsets & devices have a capability that extends beyond the operator's ability to launch new services.

   

• 130 operators have launched mobile video services, and there are estimates of a multi-billion dollar market moving forward. (The statistics are starting to come through eg Mobile TV in France - 59% of 3G users are streaming video for over 20 minutes per month with over 5 minutes per session. Patrick noted the Orange France 3G TV service was launched with Alcatel )
• The paradigm is shifting - putting tv on a phone results in network being consumed more like a media company or broadcaster than a standard two way communication network. What we are seeing is a convergence of communication and delivery of video, moving forward very fast. Other points Patrick made:
• Global retail value of mobile content is $15 billion today expected to grow to close to $60 billion by 2009.
• 70% of the value being generated with mobile content is tied to the drivers: personalization, messaging, choice and convenience.

 

• The total value of mobile music market to rise by 39% in 2005 to nearly USD 5 billion.
• According to Juniper, gambling and games will dominate the market (after adult services) ($19 billion & $18.5 billion respectively). Mobile video will be next.
• According to Strategy Analytics, global sales of music and video by operators amounted to just $792 million last year, including revenues for both network usage and content fees. The total market for mobile content delivery services was approximately 4 times bigger.

 

• The number of rich media enabled devices and the consumer demand for rich media is growing faster than the operator's ability to address them with services. The operators are not keeping up with device capabilities and an "off portal" market has emerged.
• With operators now offering video content over relatively low-speed networks, Strategy Analytics estimates that by 2008, over 250 million users worldwide will be wirelessly accessing video clips (including sports, movies and adult entertainment), generating revenues of just under US$4.7 billion.
• Video streaming has had a successful 3G take-off. e.g. there were 11,000 video greetings on New Year's Eve according to Orange Intense, Dec 2004.

Question and Answer Session

A lively panel debate followed the presentations, covering a range of issues. These included exploring the market potential of mobile applications, the value attached to the mobile data market and where the revenue streams exist.

A point from the floor questioned the rational behind the closed approach of European Operators compared with the i-mode approach. Voytek noted that European Operators currently believe that they control the value chain and so take a closed approach to extracting value from it. He argued that this has not been successful and for the market to thrive European operators must open up their platforms.

Voytek highlighted that an initial set back limiting the success of i-mode in Europe was the availability of handsets. "European manufacturers treated i-mode expansion into Europe as a threat from the Far East initially and some how slowed it down, fortunately this way of thinking has changed and now we have all the major mobile phone manufacturers working with our i-mode partners, and i-mode is doing very well in countries like the Netherlands, France and Spain and hopefully it will do well in this country soon as well".

Peter Gardener, 3i, asked the panel whether they actually see the mobile date market becoming a viable commercial service that makes money. Charles commented that mobile applications could be successful, but it is dependent on whether there is going to be a traditional access method. "If it was an open broadcast and was funded purely by advertisements from the broadcaster, I could see it taking off rapidly". Voytek agreed, "I think it will be very successful, but we shouldn't think about it as a linear extension of the existing services on other platforms. Think about the internet, the new media never replaced the old media; you still read your newspapers, so the internet created demand for a new type of content; more personalized, there will also be a great opportunities for businesses providing personalised services".

Patrick went on to suggest that in the future music artists may do deals exclusively with mobile operator, and it could be a very interesting high margin business. He noted that there is an opportunity for the artists to stick it to the labels, but at the same time the labels need to educate the artist community about what's happening in mobile and how they can start building some margins in the mobile business.

Gerry Ennis of Doughty Hanson asked the panel how they thought the advertising market on mobile phones would develop. The panel contended that opportunities were definitely there. Charles commented that he could see a model emerging in which there are free to air channels which are subsidised by advertising. Voytek agreed, "While DoCoMo has tried to spare its customers from push advertising, this may change in the future. With the advertisers paying for the content and the end user having to watch the advert in order to get the free content. There is no other device that allows for a one to one relationship like the mobile phone, that is why the advertising community sees the mobile phone as being bigger than TV in the future".

The seminar concluded on a note of consensus that there are high growth, large market opportunities in the mobile sector, that there are increasing numbers of innovative new companies based on novel technology, and that venture funding in the area would show strong growth over the next few years.