Endeavour Partners - Blog

This morning at 4G World in Chicago, Bill Morrow, CEO of Clearwire, described the need for 4G networks to support bandwidth hungry applications on smartphones, and we can’t agree more.

He demonstrated the difference between an iPhone’s performance using AT&T’s 3G network and an iPhone using WiFi to connect to Clearwire’s 4G WiMax network.  The difference was impressive:  Clearwire’s network performed beautifully for both streaming video and Google Earth, while AT&T’s network was sluggish.

Unfortunately, it is exactly this need of 4G smartphones for data capacity that will likely spell the downfall of WiMax.  By our estimates, smartphones will be responsible for roughly 50% of mobile data traffic within the next five years.  But the iPhone is not available with WiMax – and neither are any other mainstream smartphones.

Yesterday Kris Rinne opened the 4G World conference by laying out AT&T’s plan to forego HSPA+ and move directly to LTE, with commercial rollouts beginning in 2011.  This is slightly behind Verizon’s aggressive LTE deployment across 20-30 markets planned for late 2010.  The iPhone, RIM’s BlackBerry, Windows Mobile devices, and a wide variety of Android devices will all be available to run on these LTE networks.

WiMAX is a great technology, but the window of opportunity is short.  Ultimately, the availability of leading smartphones, apps, and content will determine 4G winners and losers.

One of my pet peeves is when people who should know better mis-spell Vodafone and Vodaphone. Shortening it to Voda is OK, but makes me think of the Star Wars Jedi Knight – and then the Weird Al song. Anyway, one of the things that makes competition in high-tech so interesting and challenging is that it is often not just ‘horizontal’.

Let me illustrate this with an example from DigiTimes this morning:

MediaTek and Vodafone have jointly announced that Vodafone has selected MediaTek chipsets for two new devices. The strategic partnership with MediaTek provides Vodafone with the opportunity to offer the Vodafone 340 camera phone at a very affordable price as well as its first entry level, low-cost touch screen device for prepaid customers – the Vodafone 541, Vodafone said.

Vodafone 541

This is one of eight Vodafone branded ‘phones launched today.

‘Horizontal’ competition is two similar businesses competing with one another for market share:

• Vodafone competing with FT-Orange in the UK
• Verizon competing with AT&T in the US

‘Vertical’ competition is when businesses compete for value capture, their share of the pie, rather than for market share amongst customers. Here Vodafone is partnering with MediaTek for chipsets, but effectively competing with other mobile phone vendors, such as Nokia, for some of the value created.

Competition can in fact be ‘diagonal’ or asymmetric, when it is amongst businesses that have fundamentally different scope of activities, or business models. Think Google giving away stuff free to generate ad revenue, competing with Microsoft’s packaged applications business.

Much of the competition in the mobile and broadband sector now takes this form; watch this space for more commentary…

The $99 heavyweight

In the past couple years, even months, we’ve seen a sharp decrease in the price of smartphones.  With these high power devices more and more becoming necessities instead of luxuries for mobile consumers, and revenue from data and content based traffic rising, carriers are becoming more willing to subsidize these pricey devices to put them in reach of the average consumer.  And recently the $99 price level, previously reserved for more value oriented feature phones, has been shocked by the introduction of a true smartphone heavyweight: the iPhone 3G.

Even with other carriers beginning to increase value priced smart offerings, such as the newly announced $99 BlackBerry Storm, the value per dollar ratio still leans heavily in favor of AT&T and its iPhone 3G.  To back that up, here is quick overview of the best phones currently available on the value menu:

Verizon

1. LG Dare – A resisitive touch screen feature phone offering haptic feedback and a 3.2 megapixel camera.  Limited by a smaller 3″ screen and lack of a true smartphone OS.  Plus the web browsing experience leaves much to be desired
2. BlackBerry Storm – RIM’s first foray into touch screen phones running the standard Blackberry OS 4.7.  While it carries all the enterprise friendly Blackberry features, it has been criticized for having a cramped keyboard and being sluggish.

T-Mobile

1. BlackBerry 8820 – An aging offering from RIM now eclipsed by the Curve 8900.  Usual RIM enterprise features, but suffers from a lack of a camera.
2. Samsung Behold – Another resistive touch screen feature phone lacking a true smartphone OS.  Has sub-par web browsing and lacks WiFi.

Sprint

1. Samsung Instinct – A resistive touch screen phone lacking WiFi and with bad web browing UI.  Also lacks sizable internal storage.
2. Motorla VE20 – Barely deserves mention in this category.  No full web browser, WiFi, or enhanced OS.

AT&T

1. iPhone 3G – Capacitive touch screen device running the iPhone OS, with good web browsing experience, WiFi capability and sizable internal storage.  Lacks expandable memory.
2. BlackBerry Pearl 8110 – WiFi enabled trackball device with limited internal storage running BlackBerry OS.

This overview shows that there simply isn’t a contender to compete with the $99 iPhone 3G.  As these prices continue to drop, smartphone penetration will increase and it will become ever more necesarry to have true smartphones available at this value menu level.  And of course, this topic begs the question: How long will it be before we see the rise of free smartphone offers?  At that point the feature phone may become obsolete and this current value price level may be reserved for even smarter, heavier hitting devices.

Last week, I posted a quick analysis of Apple’s App Store, which is on pace for over 3.2 billion application downloads by year end.  We tried to do a similar analysis for other platforms such as BlackBerry and hit a snag:  There is little or no information available for BlackBerry App World.  See below:

Blackberry App World has not released download stats

As we dug deeper, we found good reasons for this dearth of data.

First, BlackBerries sold through major network operators do not come with App World pre-installed; hence one of the key questions is how many BlackBerry users have downloaded, installed and set up App World.

Another challenge is that users can get BlackBerry apps from a variety of alternative sources, including:

• developer websites — for example, the excellent Google and Facebook apps for Blackberries are often acquired directly from the web and sent via email link
• Handango website — may be the leading single source for Blackberry apps
• Handango InHand — a pretty good 3rd party app store, downloaded to many BlackBerryies after Apple’s App Store became popular and before RIM’s own BlackBerry App World launched
• network operators’ websites — verizon.handango.com, for instance
• network operators’ app stores — mostly focused on ringtones and games; VZAppZone and AT&T Media Mall are examples

All this choice is confusing for both end users and for application developers.

Moreover our survey of retail store personnel at major US network operators found that they were either or both ignorant or unsupportive of App World when asked about how to get apps for BlackBerries:

• Sprint personnel did not know of any way to get applications onto a BlackBerry and began pitching the Palm Pre as a better device for apps (despite the fact that at present it only has 30 apps, and it’ll be late summer before the SDK has widespread availability)
• T-Mobile personnel knew there was a BlackBerry source for apps, but did not know the name or how to get it
• Verizon’s sales people pushed VZAppZone as an alternative for BlackBerry applications
• only AT&T front line personnel immediately knew about Blackberry App World and described how to find and install it (is this in someway a spillover effect from their learning with the iPhone and its App Store – experience that sales people at other network operators just do not have?)

Given little or no support from network operators, App World must first be discovered and downloaded by users; like any innovation, without information there’s no adoption. In addition, users must have a PayPal account or sign up for one to purchase apps on App World.

Here is a step-by-step comparison of first time use for Blackberry App World vs. Apple’s App Store:

Typical App World vs. App Store first time experience

Guess which application storefront has “Billions and Billions served” and which one has so far been less than forthcoming with performance metrics?