Endeavour Partners - Blog

Yesterday’s Blackberry outage was eye-opening.  There are mixed reports all over the web about the extent of this outage and what caused it, but I lost email, PIN messaging, Blackberry messenger, and had intermittent problems across all other apps on my device.

I was traveling with a Blackberry-wielding colleague.  Usually this would make us feel like business Samurai, ready for anything.  Yesterday, this overconfidence caught up with us.

Emails to my travel agent never made it through, and there was no rental car waiting for me in DC.  Even at Hertz, I had one of those “not exactly” moments, and it took an interminable half hour to get a car.  In transit from the airport to meet people for dinner, neither of us could get wireless data connectivity.  No ability to search for the hotel and restaurant by name.  No ability to use Google Maps to get directions.

Also, we kept dropping calls.  Even calling to get directions was not as smooth as usual, but eventually this is the “old fashioned” way we found our destination.

Me:  “I can see the mall on my left, and the XYZ company on my right.  No, I don’t know what street I’m on.”

Friend/colleague on other end:  “I think I know where you are; go 1 mile, then turn left.”  (Not so long ago, this would have seemed miraculously cool – like in the Matrix:  “I need an exit!” – now it seems pretty pedestrian and painful.)

This sort of event brings home how much we depend on technology on a daily basis.  And how quickly we’ve become spoiled by technological capabilities that are relatively new.  It reminds me of a sort of post-apocalyptic Stephen King novel, where the protagonist needs to find their way through the world using their feet and their wits, but they are suddenly bereft of all modern technology and convenience.

Without Google Maps (and frequent United flights!) I’m not sure I’d make it to Denver in The Stand.  I’d probably jog right past.  Would you make it?

Perhaps more importantly, this has me seriously questioning my loyalty to Blackberry.  From a competitive analysis perspective, this is a disaster for RIM. Two major outages in a week.  A general degradation in service over the past year.  Meanwhile, my partner is having great fun with his iPhone, and my wife’s Droid Eris seems pretty darn cool.

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.

We’ve already noted that despite the excellence of WebOS, Palm needs strong support to become a credible platform player, competing with the likes of Apple, RIM, Android, Nokia/Symbian/Ovi and even (because it might do something radical) Microsoft with WinMo.

The point is now not lost on even the analyst community (Kaufman Sets Hold Rating; Many Possible Suitors), who’ve identified several options:

“…potential suitors include Nokia, Samsung, LG, Motorola, Hewlett-Packard, Cisco, Microsoft and Dell.”

Let’s leave aside the question of why buy now, when in December Palm was trading at less than one-tenth of its current value with a market cap below $200 million, the value of Palm is in WebOS and its US presence, not the Pre, so let’s take a look:

Nokia – already bought and paid for Trolltech, and has Maemo – not likely, unless its struggles in the US make Palm worthwhile for that alone

Samsung or LG – {neutral | non-aligned | independent} device players – very hardware-focused – do they want to transform their business model become a platform player with WebOS, competing against Android and Microsoft rather than collaborating with them, or trying to co-exist?

Motorola – too many of its own issues, also already stronger in US than elsewhere

HP or Dell – clearly want to build positions in smartphones from their personal computer position, could they re-focus WebOS development in the right direction?

Microsoft – not unless or until it admits (to itself, most of all) that WinMo’s not going to get it there…

Cisco – the wildcard, perhaps as the basis for entry into smartphones as they become a key element of the the interwebs

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.