VCs: Mobile Apps Need Breathing Space
In fact, venture capitalists speaking at yesterday's Mobilize conference, put on by The GigaOM Network, said they'd be happier if carriers kept their hands off mobile apps startups, at least at first.
The conference was subtitled, "The Future of the Mobile Web," and the VCs were focusing on the applications space, which has gotten a boost from the Apple Inc. (Nasdaq: AAPL) iPhone but still isn't necessarily making money for many startups.
Panelists agreed, though, that the apps world is headed toward a multivendor model, where an application isn't written for just one mobile device.
Along those lines, VCs said they don't like to see an apps startup pin its future on one particular carrier, either.
"I prefer to get involved with companies that don't require a carrier relationship, because it leads to a healthier relationship with the carriers you do work with," said Rob Coneybeer, managing director with Shasta Ventures .
It's a question of power, panelists said. Investors don't want to see their apps startup's business thrive (or not) at the whims of a carrier.
What's better is for the application to gain an audience on its own. Dixon Doll, a founder and general partner of DCM - Doll Capital Management , cited the example of MLB.com, which streams live baseball games to PCs or handsets. "It's going like gangbusters. If one carrier doesn't treat that content supplier properly, they'll be out of there in a heartbeat."
(It's worth noting that MLB.com has a rabid, ready-made audience that other applications don't.)
Apps developers need to start speaking a language that's not just tied to service providers' requirements, panelists said. The metrics normally tied to applications are largely based on carrier concerns, particularly revenue per user, or the ability to dampen churn, said Bob Borchers, a general partner with Opus Capital and former senior director of marketing for the iPhone.
Smartphones have shown "there is another ecosystem that can develop," he said.
But if the app firms always get their way, it could mean trouble for the carriers. In announcing an upgrade to its 3G network earlier this week, AT&T Inc. (NYSE: T) also said it's going to spend $17 billion to $18 billion this year on infrastructure, about two thirds of which will go to wireless and broadband. (See AT&T to Boost 3G Speeds .)
"If the cream is being skimmed by apps developers and Apple, it's going to be harder to justify that investment," said Mitch Lasky, general partner with Benchmark Capital .
Carriers might already be finding a way to cope -- for example, by outsourcing network operations to someone else to save costs.
"We're starting to watch the unbundling of what a cellphone company is," said John Balen, general partner with Canaan, citing Bharti Airtel Ltd. (Mumbai: BHARTIARTL) as an early example. "It happened in India, because guess what? The average ARPU [average revenue per user] there is way lower." (See Ericsson Networks Bharti and Ericsson in $1B Bharti Expansion.)
The idea seems to be catching on with other mobile operators -- and Alcatel-Lucent (NYSE: ALU) has recently struck some noteworthy outsourcing contracts on the fixed-line side, too. (See Outsourcing Mobile Infrastructure, VOD UK Outsources to Ericsson, BT Outsources Ops to AlcaLu, and AlcaLu, Bharti Form Joint Venture.)
— Craig Matsumoto, West Coast Editor, Light Reading