Endeavour Partners - Blog

I am taking some time off this week with my family, which means that I’m mostly only doing critical work things each day (the price of being an entrepreneur – rather than ‘no rest for the wicked’, it should be no rest for the entrepreneur’).

I couldn’t resist posting, however, about the excellence of the iPad (and soon hopefully other tablet class devices) as a device for e-mail when traveling internationally:

• it is lightweight and much more robust than a laptop – a key consideration when on a boat
• it is excellent for reading and reviewing and quickly responding to e-mail, perhaps in ghe morning over a croissant and a cappuccino
• it is surprisingly good for longer e-mails if you’re a touch typist
• perhaps most importantly, it sips data, rather than slurping it, which is extremely important in these days of metered broadband and extortionate rates for international data roaming

In sharp contrast, even a lightweight laptop is only slightly more effective, unless you need to go all the way back into your whole IMAP archive, and is bulky, fragile and a bandwidth hog.

Despite (or because of?) the advent of 4G, managing bandwidth will become a key issue.

(Written on an iPad)

Earlier this week I was in Oslo, giving a presentation on the future of the digital ecosystem on behalf of Innovation Norway. There is a huge shift in value underway, triggered by the advent of the app phone, and now extending across the whole of the digital ecosystem: communications, computing, consumer electronics and content. While this is creating lots of new opportunities, one of the key challenges facing any entrepreneurial venture is the clash amongst three titans – Google, Microsoft and Apple – all of whom have market caps north of $150 billion and see this as a death match.

Market capitalization of the three titans

There’s a great picture of the clash on DataViz today:

Clash of the Titans

We are delighted to see that we continue to blaze a trail that the White House follows. Having migrated our IT infrastructure into the cloud, we have also embraced the iPad; apparently now the White House has also.

The folks who gather early every morning in the West Wing office of White House Chief of Staff Rahm Emanuel have something new in common these days. Practically everyone has an iPad — or will have one very soon.

Apple's iPad

There’s an interesting guest post on TechCrunch this morning by Marc Benioff of salesforce.com, an archetype for or epitome of cloud services, talking about how ‘cloud services’ are evolving. I hate is ‘Cloud 2′ moniker, and agree with some of his hypothesis, if not all:

Cloud 1 ————————————->Cloud 2

Type/Click———————————->Touch
Yahoo/Amazon—————————–>Facebook
Tabs——————————————>Feeds
Chat——————————————>Video
Pull——————————————->Push
Create—————————————->Consume
Location Unknown————————->Location Known
Desktop/notebook————————->Smart phone/Tablet
Windows/Mac——————————>Cocoa/HTML 5

Fundamental Shift in Cloud Computing

FWIW, we believe that amazon.com and Google will both thrive, and remain deeply skeptical about Twitter.

One very interesting development, is how this battle is affecting standards for rich graphics on the web. Marc notes the move to Cocoa and HTML5; we were skeptical about HTML5 but may re-examine our position given the impact of the iPad and the iPhone, as highlighted by this recent post from Gizmodo:

The iPad doesn’t run Flash. If your website uses Flash, it won’t play well on the iPad. Turns out, a lot of people want their sites to look pretty on the iPad. So the internet’s already starting to look different.

One of the more interesting effects of the iPhone was that it drove a ton of websites to format their content for the phone in at least of two ways, and often both: iPhone-optimized sites, with more finger-friendly navigational elements that look almost app-like, and actual iPhone apps. We’re seeing a repeat with the iPad, though the adjustment appears to be less about the screen size than its lack of Flash support, and there’s the fact a lot of sites will be ready on day one. (Though before we go any further, let’s be clear: Flash is sticking around, for many reasons, regardless of Apple’s opinion of it.)

It seems that Samsung has recognized the importance of the smartphone market – Samsung aims to treble smartphone sales in 2010 | Reuters – and now has ambitions to treble its shipments. While a target of 18 million smartphones sounds impressive, that doesn’t make it a leader:

• Nokia’s shipping about 21 million units a quarter
• Apple’s shipping about 9 million

With Nokia’s shipments comprising about 40% of the smartphone market, it’s on track to be about 220 to 250 million units, depending on how fast it grows; that implies 7-8% market share for Samsung, split across the Android and WinMo platforms.

One of the key themes we’re focused on at the moment is the multilateral asymmetric contest amongst major platform players (Apple, Google, Microsoft and Nokia in particular), device vendors (Apple, RIM, Nokia, Samsung, Sony Ericsson, LG, Motorola, HTC in particular), service providers (Google, Apple, Amazon in particular) and network operators (Verizon, Vodafone, FT Orange and so on). There’s some interesting data from Silicon Insider illustrating the size of the stakes…

The cash resources of some of the major players

While the numbers are interesting, I have to confess I hate the graphic…

It looks like an area chart, but it’s actually a line chart. Tufte’s head would explode…

And I’d love to see the analysis extended to include Nokia, RIM, Samsung and so on. And in this context, who cares about Intel, other than ARM and Qualcomm?

The Register reports the sad but unsurprising news that Nokia’s flagship store on Regent Street is going to close.

Nokia Store Regent St UK (from silicon.com)

It was actually the most recently opened store: there are others at London Heathrow and in places like Helsinki, New York, Chicago and São Paulo. You can check it (and the other stores) out online: http://www.flagship.nokia.com/

For those of you who don’t know the locale, it is directly opposite Apple’s UK flagship store.

Apple Store, Regent St UK (from the London Evening Standard)

I recently suggested to a client that they visit the two stores, for a sharp contrast in economics, illustrating what we call “asymmetric competition“:

• the Nokia store sells ‘phones – lots of different models
• the Apple store sells ‘phones – a couple of different models
• the Apple store also sells services, such as mobileMe at ~$100 a year
• the Apple store sells music and video and applications, through iTunes (as cards, in the store)
• the Apple store sells computers

As a result, at the moment Apple has fundamentally different economics from Nokia. Apple makes money in a variety of related ways, from mobile devices, and from personal computers (each of which generates several times the margin of even an iPhone), and from complementary cloud services and digital media and other devices.

Perhaps unsurprisingly, this Apple Store is London’s most profitable store, generating ~£60 million a year or £2,000/sq ft, three times the sales per square foot of Harrods.

Harrods

Each iPhone drives significant additional revenue and contribution beyond the device itself; as a result, Apple’s economics are fundamentally different from Nokia’s, or indeed from any other player without the same scope of activities.

There’s a related discussion about ‘phones vs platforms, and on the shape of product portfolios, which I will post on later this week.

There’s a great (albeit lengthy) post on Gizmodo about Android, although the title may be a little overstated:

[Android] 2.0 is more than that: it’s proof that Android is finally going to take over the world

As a digression, it’s fascinating to see how a technological innovation can re-shape language: the former meaning of android is now relegated off the first page of search results on Google, which led me to try ‘androids‘ as an alternative:

[youtube=http://www.youtube.com/watch?v=biBHJvGx3s8&hl=en&fs=1&]

The article from Scientific American about this date with a robot can be downloaded here; I find it intriguing partly because I began my career as a roboticist and cyberneticist.

Although it may overstate the case, because we are just in the earliest stages of a fierce contest amongst at least five credible competing app phone platforms, the post from Gizmodo does summarize well much of what provides the impetus for Android and why Android 2.0 is so important:

it’s “the first truly open and comprehensive platform for mobile devices.”

Android 2.0 means the handsets aren’t just interesting anymore; they’re truly buyable

In addition to everything else Android has going on, timing is on its side. Windows Mobile is limping along with two broken legs…

…as far as most consumers are concerned, anything Windows Mobile can do, Android can do better

The Palm Pre, polished and beautiful as it is, can’t keep up with Android’s exploding app inventory, multiplying hardware partners and rock-star ability to draw talent

Android 2.0, along with Palm’s WebOS and Apple’s iPhone OS, are the main reasons the BlackBerry OS feels so clunky and old

Let’s take a quick look at each of the other major contenders:

• the iPhone is the current leader, and critically works well across not just app phones, but through iTunes across other platforms such as personal computers and TV
• although RIM’s BlackBerry has been the long-time leader in the enterprise, it is not doing as well in the consumer marketplace, particularly outside North America, and its software platform (RTE, APIs and SDK) looks increasingly clunky in comparison to iPhone and Android
• Nokia is investing heavily in the transition to Qt and Maemo – the big question is really can it get there fast enough
• Microsoft’s most recent release of 6.5 was late and lacked usability, and despite some good things being said about it 7 is still some way off, eroding support for it
• while WebOS is technically elegant, the Pre’s implementation is slow, Palm lacks distribution and was really late with its SDK – it will be extraordinarily difficult for Palm to overcome these handicaps and establish itself as a credible competitor in the face of the likes of Apple, Google, Nokia, Microsoft and RIM

Android’s a strong contender, but it’s by no means yet certain that it will rule the world. In fact, one of the real possibilities is that rather than reaching a tipping point, a few of these will co-exist over the medium- or even long-term.

David Pogue has a review today of Motorola’s Droid which includes some discussion à propos how to categorize and name devices of this type.

Motorola Droid

He promotes the noun ‘app phone‘ for them, attributing it to @mentalworkout.

[Cool app, BTW, for those who have fear of flying. I took the Virgin Atlantic flight to London earlier this week; if you're lucky enough to fly in Upper Class, it's such an extraordinarily soothing experience that you probably don't need the app.]

I really like ‘app phone‘ , and suggest that we all adopt it for this class of devices:

• Apple’s iPhone
• all current Android ‘phones
• most modern BlackBerrys – post Curve
• Palm’s Pre
• Nokia’s N97 and N97 Mini running the latest version of Symbian

This post re-surfaced for me, however, one of the key topics that we have found ourselves debating frequently over the last many months; what is a ’smart phone’, and what should we call it?

This is a common challenge in high-tech; how do you think about new phenomena? How do you build robust mental models? We believe that having the specialist expertise to do this, and the relevant experience of having done this, is one of the key things that differentiates Endeavour Partners.

First, what are the key criteria:

• downloadable applications – in which case do BREW and Java devices qualify?
• user interface, such as (responsive) touch screen or QWERTY+touch pad/trackball interface to allow easy navigation for the web and similar applications
• running multiple applications – which disqualifies the iPhone?
• great at browsing – typically with a full WebKit browser
• third party applications have to be available, affordable and accessible
• what about size – is there some constraint here, because otherwise a laptop could qualify?

And what about the additional capabilities that are now part of the competitive benchmark:

• fast graphics – for video, browsing and gaming
• accelerometers
• GPS – for location services
• WiFi

There are several specific devices or types of devices that illustrate this challenge, and the grey areas involved:

• older BlackBerrys with thumbwheels but without trackballs – great at e-mail web but suck at browsing
• the Nokia E71, a great (particularly when it launched) device handicapped by its click-pad for navigation (which on one occasion proved enormously frustrating as the cursor moved in clicks that circumnavigated a small target without ever being able to actually click on it, on a site that should have been designed with mobile devices in mind – Handango)

Nokia E71

• many of Nokia’s myriad Symbian S60 devices that have 12-key keypads, lacking either a touch screen or a viable navigation method for browsing
• and what of the forthcoming Nokia N900 – is this a smartphone, or not?
• and given how unresponsive the touch screen on the N97 and N97 mini can be, and some of the usability challenges that remain with Symbian, do the N97 and N97 Mini qualify?
• almost all Windows Mobile devices, that lack a touch pad, requiring a stylus or arrow keys for what is enormously painful navigation (Sony Ericsson’s Experia X1 is one of the few devices that overcomes this challenge)

On purely pragmatic grounds, and notwithstanding flame wars from some purists and Verizon’s new advertising campaign, clearly any definition that excludes the iPhone on the technically focused grounds that it does not run multiple applications at once, except for some built-in apps such as Mail and Phone, does not make much sense. Although this may be an important consideration, it clearly does not deter users, and the ease of switching amongst applications mitigates this significantly.

The related question was what to call these things? We tried the term ‘smart device‘, to emphasize the that the capabilities went way beyond making a call. Unfortunately that promotes confusion as it embraces some very devices that do not have ‘phone capability at all.

So, let’s endorse the term ‘app phone‘ for these high end devices, and use the term ’smart phone’ for the broader group of which these are a subset.

At 4G World here in Chicago, the debate is raging on about the potential value of femtocells.  One audience member asked yesterday, “If I already have a 20 Mbps broadband connection and a WiFi access point, then why do I need a femtocell?”  I think he was on to something, but it is interesting to go back in time a little and see how the relative business cases for WiFi and femtocells have changed as the market evolved.

This feels like a confession:  Three years ago, I was a proponent of femtocells as a solution for indoor coverage, particularly when compared to WiFi UMA.  Too few devices had WiFi, and it seemed unrealistic to expect many users to adopt a solution that required such a constrained selection.  Different family members or different personnel within an organization may have very different device preferences or be at different points within the replacement cycle.

By contrast, femtocells allow installation of customer premise equipment where it is needed, and the problem is solved.  Individual users don’t need to change their behavior, and if the costs were right, then it could be an attractive solution for many households and businesses.  But the costs were too high (I priced one at $300 at the time) and commercial availability was and still is limited.

Fast-forward three years and the market has changed dramatically:

1. Lead by the iPhone and RIM’s Blackberry, smartphones are rapidly gaining share – in developed markets, the majority of users will have one within two device replacement cycles
2. The challenge is no longer only about indoor coverage, but now also includes an immediate need for additional data capacity to support high bandwidth applications
3. Leading smartphones will nearly all be WiFi-enabled

The result is that homeowners and businesses no longer need to pay to install a femto cell, and users no longer need to be constrained to specialized, suboptimal devices.  For most people, WiFi coverage already exists in their home and office, and these same people are likely to carry a WiFi-enabled smartphone now or within two upgrade cycles.

These smartphones are also responsible for driving a massive increase in data traffic and clogging up 3G networks.  WiFi provides a mechanism for operators to offload 30% or more of this traffic without massive upgrades — and in advance of LTE networks coming over the next 3 years.

Device makers are scrambling to offer smartphones that match Apple’s iPhone as the key competitive benchmark (including WiFi).  Mobile operators are responding to increasing smartphone usage with investments in WiFi assets and improvement of seamless switching between WiFi and wide-area cellular to offload some of the associated explosion of data traffic.  The way the iPhone restricts high-bandwidth applications so they can only be used over WiFi is a good example of a first step in this direction.

Meanwhile, the level of investment in femtocells is small by comparison, involves a tough value proposition to customers, and is focused on solving a problem that is largely taking care of itself.

My money is on WiFi.