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OZ Follows Nokia's IM Road

Light Reading
LR Mobile News Analysis
Light Reading
11/29/2004

Wireless instant messaging vendor OZ Communications Inc. has won a deal to license its mobile IM client software to the world's number-one handset vendor, Nokia Corp. (NYSE: NOK). (See Nokia Licenses OZ's Mobile IM.)

The move will see Nokia offer preinstalled IM clients, branded to popular services such as Yahoo! and AOL Instant Messenger, across its range of handsets. This is clearly a big deal for the 75-person startup located in Montreal and Iceland (hey, some like it cold).

The tie-up comes on the heels of OZ's agreement to license its IM technology to the world's number-three handset vendor, Samsung Corp., and provides a useful gauge of how fast the market for IM and other presence-based mobile services is developing (see Samsung Mobile Selects OZ IM).

In line with most observers, OZ CEO Skuli Mogensen identifies North America as the major early market for mobile IM, since due to carrier demand, it is now a "hard requirement to have multi-branded IM on all phones sold," he says.

"Ninety-five percent of the traffic is PC-to-mobile, or mobile-to-PC, so it's new revenue entirely," claims Mogensen. "It's billed on a per-message basis or a message-buckets basis, and it's not cannibalizing SMS in any sense whatsoever."

To enable carriers to bill for IMs, OZ sells a gateway product that monitors user traffic and provides interconnection to third-party IM providers. According to Mogensen, all the big contracts for this kind of gateway equipment in North America have already been signed: "It's between OZ and Comverse." In theory, however, because mobile IM is based on standards from the Open Mobile Alliance (OMA), the gateway and client software need not be purchased from a single vendor.

In the long term, Mogensen sees messaging services deployed around presence servers and IP Multimedia Subsystem (IMS) as being major revenue creators, but he cautions against the "build it and they will come" approach. "The original vision was that operators would buy huge presence servers [on which to base multiple services], but now we think the market will be more application-led." IMS is "complex" in the short term, he says.

A degree of caution seems warranted. In September this year, OZ announced $27 million of new funding (led by VantagePoint Venture Partners) – described by Mogensen as a recapitalization of the company (see OZ Gets $27.3M). "Two years ago, we went through a massive reorganization and writedown," he explains.

Now, like all good startup CEOs, Mogensen is once again bullish on his firm's outlook. He expects North American carriers to "flood the market" with IM-capable phones in 2005, with Europe taking off in 2006.

— Gabriel Brown, Chief Analyst, Unstrung Insider

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