Endeavour Partners - Blog

One of the key trends that we’ve been tracking closely is the emergence of the smartphone as a handheld gaming platform:

• the threat it poses to specialized handheld gaming platforms, such as the PSP and Ninetendo DS, which it rivals or surpasses in performance
• how significant an opportunity this may become

Gameloft announced today that it has sold over 6 million paid games:

Gameloft(R), a leading publisher and developer of downloadable video games, today announced that it
has sold over 6 million [paid] games on the App Store.
From the distribution model to the types of games available, the App Store has completely revolutionized the way handheld games are played, perceived and received
The iPhone OS continues to be Gameloft’s number one platform

Clearly, as competition amongst smartphone platforms and smartphone vendors intensifies, one of the key factors that determines the outcome will be how good they are as gaming platforms, how attractive they are to games developers and the strength of their business ecosystem.

News today suggests that Palm wants to embrace Google Voice, even though Google may not be as keen to embrace Palm.

We’ve heard from a source close to Palm that the company plans to roll out deep integration with Google Voice on the Pre phones for users who want it. That could convert a lot of iPhone users to the Palm Pre fast.

This illustrates extraordinarily well the role that asymmetric competition plays in triggering ‘creative destruction’, and the transformations that high-tech undergoes periodically. One such transition underway at the moment is the move in several different arenas to ‘over-the-top’ services, in which insurgents (Google) and underdogs (Palm) leverage rich connectivity and smart devices to disenfranchise and disintermediate conventional telcos’ smart switches and dumb devices.

Google voice

It’s these underdogs, who have little or nothing to lose and much to gain from it, who creatively destroy established business models. Any share gain for Palm would be a big deal; without something that gives it much more impetus it’s not going to achieve escape velocity, and will likely crash and burn. If Google can provide this, then well and good; the opportunity cost to Palm of any revenues foregone is small.

It’s not yet clear how Sprint will respond; again as arguably the weakest of the fab four it may well perceive the potential market share gain as outweighing the ARPU downside.

And as far as Google goes, all of this is good news. It may not officially endorse Palm and the Web OS in this context, given its linkage to the Android OS ecosystem, and need to be seen to be continuing as a strong supporter, but it nevertheless benefits from this.

But should the strong players, such as Apple or the major MNOs be seriously concerned about this? It’s suggested that Apple should worry:

this could convert a lot of iPhone users to the Palm Pre fast

Frankly, I’m skeptical; good as Google Voice is, it’s already available on other platforms, and extending this to the Palm Pre is not going to make it a winner in the marketplace; at least at the moment despite the excellence of Web OS from a usability perspective, Palm has not yet demonstrated that it has the market momentum needed to build a strong and sustainable business ecosystem.

Ars Technica has some insightful observations on this score:

Palm’s major mistake was that it delayed the launch of the webOS SDK until April, allowing its new phone go the entire summer without a real ecosystem. Sure, Apple was able to launch the iPhone without any real developer support, and the company took its sweet time in releasing the iPhone SDK. But Apple wasn’t going up against competitors with software distribution platforms that were high volume or high profile. When the iPhone SDK was ready, it came with an app store that’s every bit as revolutionary as its music distribution platform was.

When the Pre launched, it was competing with the iPhone ecosystem from day one, but you wouldn’t guess it from the way Palm has handled things. The initial app store catalog was small and lackluster, but it could’ve been ramped up quickly with a range of apps showing what the Pre hardware can do. But here we are in August, and no one’s Pre has gained any new capabilities. There’s nothing new for the press to write about, nothing for any Pre owners to show off to their iPhone-using friends, and generally no reason to get excited all over again about Palm

It’s all about timing. If Palm had come out several months earlier, and got its act together on the SDK, the whole landscape would be very different.

Computerworld is publishing the results of its mobile deathmatch between the iPhone and the Pre (Mobile deathmatch: Can the Pre knock out the iPhone) on Monday (6 July) and is asking for feedback on what to evaluate the devices on. FWIW, The Register has a good comparison as well.

I’ve been using both intensely since the Pre was launched (along with an N97, and less intensely a Storm, a G1, a Bold and an X1), and the Pre does come closest to the iPhone.

There are two key criteria which differentiate all of these devices:

• user experience (UX)
• ecosystem (apps and content)

And when you dig deeper, ease of use is not so much about any individual app, it’s about the ‘edge cases’. They’re all pretty much the same for an individual stand-alone task, except where the hardware lets them down (like the resistive touch screen on the N97 and WinMo devices, and the Storm’s horrible hybrid).

The big difference is if the job that you want to get done is an ‘edge case’:

• forward something from an SMS as an e-mail
• take a video and post it
• get information from a search and use it to navigate
• pick up a e-book for casual reading for a few minutes
• watch the second half of a movie on a smartphone that you started on the big screen TV last night
• search for and get directions to the nearest Starbucks (certified caffeine addict)

This is where the iPhone (particularly now it’s got cut-and-paste) excels. Easy to switch apps; lots of them.

They play nice together; take the integration of Where with Google Maps:

1. Swipe to the screen with Where on
2. Tap on Where
3. Tap on Starbucks
4. Tap on the nearest icon
5. Tap on Get Directions

Five taps, because there’s a nice little app, and good interworking; 17 seconds.

I just checked, on my big desktop it takes three times longer – ~50 seconds:

1. Mouse to the search field in Safari
2. Type ’starbucks’ into the field, hit return
3. Mouse over to and click on ‘Store Locator‘
4. Mouse over to the ‘Postal Code’ field and click in it
5. Type my ZIP code ‘01742′ into the field
6. Mouse over to and click on the ’submit’ button
7. Mouse over to and click on the nearest store
8. Mouse over to and click on ‘Driving Directions’
9. Type in my street address: about thirty characters and four tabs between fields
10. Mouse to and click on the ’submit’ button

Seven (7) mouse movements, about forty characters of typing.

Worth noting as well, with the app, Google sees much less; how will this affect its economics over the long-term?

Or the amazing Kindle app, which syncs to the last page read in the book that I’m reading.

For messaging and communication tasks, the BlackBerry (except the Storm) is better at mixing and matching modes than anything else.

The Pre’s pretty good as well. Where it falls short is in the complementary ‘cloud services’ and in the apps. The user interface is very elegant, and has some nice touches (pun intended), but it falls so far short on the apps side. The sync with iTunes does, at least for the moment, work surprisingly well.

There’re now a slew of apps on the Phone, like Where and At Bat (Red Sox fan, no zeal like that of the convert) and SugarSync and WordPress on which I depend. The Pre and WebOS has Where, but none of the others.

Without the strong support of either or both a major global network operator (Vodafone, Orange, T-Mobile or Telefonica) or licensing to and working with one or more of the top tier ‘independent’ device vendors (Samsung, Sony Ericsson, LG, HTC or Motorola) Palm won’t get the market momentum it needs to build an installed base to enroll developers. Shipping the SDK so late and expanding the developer program so slowly doesn’t exactly help, either.

So, evaluate smartphones on ease of use for edge cases, and their supporting ecosystem.

There’s a lot of buzz about apps for smartphones. Not all apps are created equal, however, particularly when it comes to making money from them as a developer.

And that matters to platform players (Apple, RIM, Android, Nokia/Symbian/Ovi, MSFT/WinMo and Palm/WebOS) and device vendors (Apple, RIM, Nokia, Samsung, Sony Ericsson, LG, HTC and Motorola) because apps matter to consumers, and the choices that developers make will play a big part in which platforms win.

For the core apps like mail, messaging and browsing, their importance and economics means that platform players or device vendors have to deliver a great experience, they’ll be prepared to spend $/€ millions to do so, and they’ll give them away for free. That’ll make it difficult or impossible to compete against them. The world does not need another mobile browser company.

There’s a related category where other big businesses will also seek a presence on a platform, such as the iPhone, because of the payoff to their wider online or offline business, through for example increased brand awareness or reach. Think Amazon, Barnes & Noble or BA Flights (Yes, I’m a transatlantic bibliophile).

At the other end of the scale there will be a gazillion applets or widgets. It’ll be really hard to make money from these, because customers expect them to be free, and they’re often the fruit of individual developers scratching their own (sometimes idiosyncratic or even idiotic) itch. Maybe a little advertising money, but on a small screen, even a smartphone’s high resolution version, there’s a limited window for this. Perhaps if contextual information about who and where and what can be used, the value of a click-through can be raised, if privacy concerns can be addressed effectively.

In the middle, there seem to be two possibilities:

1. focused apps targeting a well-defined and stable job that people want to get done, and whose utility and usability is high enough that people will pay a few $/€ for them, but which are not so universal that they get bundled into the core and given away for free
2. infotainment apps, that can be renewed and replaced, fueling our insatiable appetite for amusement, such as games

There’s some really interesting analysis by ChubbyBrain (The iPhone Inspired 2nd Economy: Over $100 Million Goes from VCs to iPhone Startups) which estimates that $100 million in venture funding has already gone to iPhone apps insurgents in the middle of the spectrum. These are business for whom the apps are the core of their business rather than a complement to it, between established businesses that can fund iPhone app development themselves, and individual developers.

The three biggest categories, both by numbers of companies, and by amount invested:

• gaming and entertainment
• information provider
• social networking

Yup, it’s all about amusing ourselves.

Interestingly, this is also why the economics of video are so different from the economics of music.

With the dawn of the superphone, where is Microsoft? – FierceWireless

In a post on FierceWireless about smartphones (which he tags superphones), Stephen Drake poses the question that many of us are wondering about – what is Microsoft going to do?

It seems to me, however, that although it’s the right question, he’s missing the point, focusing on aesthetics and hardware, rather than on ease of use and software.

He characterizes these smartphones (or ’superphones’) as a:

“…high-end device class characterized by its ‘wow factor,’ a real or perceived buying frenzy, or an otherwise stylish, functional and pretty-to-look-at device…”.

While aesthetics matter, as hardware features, functions and form factor continue to be difficult but do not any longer differentiate, he completely misses the single most important factor: the user experience.

Talking about the Pre, he focuses on its: “…multi-touch capabilities and beautiful interface…”, hardware and aesthetics, when what matters about the Pre is WebOS. And the apps. Or lack of them.

When he comes to Microsoft, he asks where is “… the iconic, shiny device that users have coveted….” There are iconic, shiny devices: Sony Ericsson’s Xperia X1 for example, but WinMo just isn’t there.

Yes, aesthetics matter, but much less so than first ease of use, then the ecosystem (apps and content), both of which outweigh elegance.

Unless and until Microsoft can deliver the usability that customers are coming to expect from Apple, Android and Palm, it will remain uncompetitive.

Tragically, although this should have been apparent since before the launch of the iPhone, as Andy Lees put it at the announcement in Barcelona in February of the forthcoming 6.5 release:

“…[the user interface] seemed less important…”