VC Blog on Storage, Wireless/VoIP, Internet

1 or 2 smartphone markets?

I read a very thoughtful blog today by Michael Mace, a wireless industry veteran http://mobileopportunity.blogspot.com/2007/01/shape-of-smartphone-and-mobile-data.html

However, I disagree with one of his core points.  He argues that the market is improperly forecasting that smartphones are for everyone and he instead views there as being two markets, 1/3 of people using more than voice in the US and 2/3 of people using voice only in the USA and therefore who will not need a smartphone.  His graph is below:

While I respect Mr. Mace's insight and experience, I believe his blog misses the point.  The mobile user market may be shaped like a two hump camel today, but he implies the market will be static, and I disagree.  His argument reminds me of the famous McKinsey study for AT&T prior to 1984 in which McKinsey recommended AT&T shed its wireless licenses on the Baby Bells since only 1 million people who ever want to pay a high price per month to carry a brick sized telephone around.  Today, in 2007, e-mail and photo sharing websites are not only well used by the mass market, they are increasingly adopted by senior citizens.  When the mobile web over smart phones built by industry titans like Mr. Mace are as easy to use as a PC is today, smart phones will dominate over commodity handsets, the way broadband is dominating over narrowband.  The question is not if, but when the two camel humps will flatten out. 

Wireless Killed the PC Internet Star

On XM the other day, I heard the classic early 1980s song "Video Killed the Radio Star."  It got me thinking... what forms of communication and entertainment are dead or dying?  Now, radio clearly still exists, and new franchises can still be built in a dying medium (i.e., XM, Sirius, Howard Stern).  But, radio has been dying for 25 years, just as TV has been dying for 5.  What else is dying?  I would argue that the PC-based Internet is dying.  Yes, the PC-based Internet's flower currently in full bloom with explosive growth at Google, YouTube and MySpace.  But, will desktop and laptop computers still be relevant for consumers in 10 years?  Sure, they will still exist, as do mainframe computers and tape libraries.  But, if we can perform 90% of our critical consumer functions TODAY on a 1 pound wireless device, why will we need to lug laptops around?  I imagine each house will need a legacy computer for the kids to research and write term papers and such (things they will never work on the small form factor of wireless devices).  And businesses will still use PCs for Excel, ERP, etc.  But, 90% of what we consumers do today over computing devices is e-mail, photo sharing, getting snack sized news updates (sports, stocks, headlines, etc.), playing games and web surfing.  All of that can be capably done today over COMMODITY wireless handsets (like my cheapie Nokia).  We hardly even need the power of the Blackberry unless we are power-emailers.  We certainly don't need PCs.

PCs aren't going to die as fast as 8-track cassettes.  But, they are dying.  They are just too big and clumsy to serve the killer apps of 2006-2016.

Wireless is killing the PC Internet Star indeed.

By the way, remember the wireless web bubble expected in 1999 that never came?  Oh boy... is it coming, just watch.  The explosion of wireless data services coming down the pipe is amazing, and the usage is still early days, but is booming with YouTube like ferocity.  And the carriers are ready this time... and they are not willing to lay down to Google and become dumb pipes like the landline ISPs did.  Lots of money will be made and lost in wireless data bubble 2.0.

Voice ARPU down, Data ARPU up

Here are some great stats from Motricity:

http://www.motricity.com/insight/stats.php

Voice ARPU continues its steady decline at 3 percent per year, while data revenues march upward with premium content growing by 76 percent in 2005.

Wireless Carriers: More than a dumb pipe

As a venture investor in the wireless industry, a key question is how enduring will be the trusted relationship between carrier and consumer.  Some say fleeting, that wireless carriers are but a "dumb pipe."  I disagree.  A carrier likely will never be and should never be as innovative as a leading content company like Google.  But, I would rather my wireless carrier provide benefits to me as I consume more fruit in its walled garden.  I like the convience of a single billing relationship.

Time will tell...