Tuesday, December 18, 2012

Opinions and 2013 predictions from VCs in the mobile space.

As is the case in many industries, groups representing the wireless industry in Silicon Valley have a tradition of concluding the year by taking a measure of the hottest current trends, and gathering predictions on what lies ahead. In November, the Wireless Communications Alliance (WCA) held their annual “What’s Hot (and What’s Not) in Mobility event, and on December 10, the Mobile Monday Silicon Valley (MOMOSV) group held the “Year in Review and 2013 Predictions” at Microsoft’s offices in San Francisco.

Both meetings presented a range of opinions, on a number of different mobile-related topics, from panels made up primarily of Silicon Valley Venture Capitalists (VC). The WCA panel included a representative of Qualcomm’s  Ventures investment division, and the MOMOSV event, which was sponsored by Telefonica, included a panelist from their recent acquisition of Tokbox.

In this article, we will cover the topics of software vs. hardware bias in the VC community, Mobile Payments and Mobile Advertising, and Device Platforms. Other topics discussed at the VC panels, such as enterprise mobility and 2013 predictions, will be covered in a subsequent article.

The WCA panel included:
Moderator: Raj Singh, Founder & CEO, Tempo AI

Mario Tapia, Director of MOMOSV moderated a panel that included:

Software vs. Hardware
MOMOSV is primarily focused on the application developer community, and hence stretches the definition of Silicon Valley to accommodate the numerous software startups in San Francisco. WCA typically addresses more hardware-related topics in their meetings throughout the year, through their Special Interest Groups (SIGs) on Mobile, Location-Based Services and Smart Grid. For the VC community, however, the focus is very heavily on software and applications. At both the MOMOSV and WCA events, hardware barely entered the conversations save for questions posed by attendees in the concluding Q & A sessions. 

The VC bias towards software is the result of a relative advantage in capital efficiency, compared to hardware startups, which promises a more attractive return for investors. The MOMOSV event kicked off with a discussion of Facebook’s acquisition of Instagram for $1 billion, raising the question of whether price inflation (which some may call a bubble) is currently taking place in the sector. Fierce competition for app developers has resulted in a new form of exit for software startups, the “acqui-hire”. Since the mobile startups primarily consist of teams of engineers, with no sales or marketing, they make a prime target for larger companies such as Yahoo and Google who may have little interest in the product, but a great desire to add the talents which the teams possess.

Mobile Payments
This popular topic was covered at both the WCA and MOMOSV events. Rich Wong and Scott Raney both pointed out that the concept actually includes many categories, and is not just synonymous with a Near-Field Communications (NFC) equipped mobile wallet replacement for credit cards. There was general agreement among the VCs that the big banks and credit card companies will not be the innovators in mobile payments, that will come from application developers, but they will house the technology and their participation is critical to form a complete ecosystem. Raney said that app developers would be competing against big players for the mobile wallet, but there are better opportunities to create ancillary applications that can add value to transactions, such as with loyalty cards.

Wong pointed to his firm’s investment in Braintree, for their mobile payment gateway technology, and also Stripe, who are developing a system to enable developers to accept credit card payments online. Sequoia is invested in Stripe, and also in Square.  Redpoint’s Raney stated that Square is not a mobile payment system, since they are really a Point-of-Sale (POS) system for accepting credit cards with a mobile device. Kevin Talbot of Relay Ventures used Square as an example of a startup that identified a “whitespace” opportunity with merchants, but cautioned that there aren’t that many to go after. 

Talbot also made the most provocative statement on the topic, at the WCA event, when he declared that
In his opinion, NFC is a technology looking for a problem, and other technologies have passed it by.

David Blumberg is looking past payments to financial services, highlighting his investment in CredoRax, another developer of an online payment processing system. Blumberg also pointed to opportunities in the 150 countries that lack credit bureaus, a whitespace that Lenddo is going after with a system that uses a measure of trust from your Facebook friends as a proxy for credit scores. 

Mobile Advertising
Since advertising is so tightly linked to monetization, it is surprising that the topic of mobile advertising did not come up at all at the MOMOSV event. At WCA, Storm Ventures' Tae Hea Nahm said that “everyone knows it will be huge”, but that nobody has quite figured out how to monetize yet. Qualcomm's Li said that the challenge is targeting, which raises privacy concerns.

Scott Raney pointed to the issues of limited screen real estate on smartphones, saying that mobile ads are still at an early stage, with an insufficient number of advertisers to monetize. Raney is on the board of JumpTap, a platform for targeting mobile ads, but he sees the segment as equivalent to the state of online advertising in 2001.  Raney finds the convergence of online and offline to be interesting, such as the rewards program developed by  Shopkick, which enables users to earn rewards for visiting and purchasing from brick and mortar merchants.

Kevin Talbot also highlighted online-offline convergence with his firm's investment in KIIP, a startup that is building real-world rewards into mobile game play.

Device platforms and HTML5
The panel at MOMOSV took on this topic, with almost all of the VCs agreeing that mobile has come down to a 2-horse race between Google's Android platform, and Apple's iOS. Rob Coneybeer from Shasta Ventures described the situation as a stable duopoly. "Apple is happy with 20% market in places with money", he said, while they continue to acquire 80% of mobile revenue. Coneybeer sees the platform war as stable for the next 4-5 years, forecasting that we will continue to see new experiences on iOS first, and Android second. While that may be true for the most widely adopted "experiences", there are a number of examples, such as NFC-related applications, in which Android has been first to market.

Blumberg said that Microsoft's Windows on mobile will definitely be 3rd, but that the world is moving too fast for them to catch up. Rich Wong agreed with Coneybeer, saying that, realistically, mobile is a duopoly, but he hopes that Microsoft can battle to keep it from being that way. Todd Carpenter was somewhat more optimistic for Microsoft, offering his opinion that we will have a 3rd mobile OS, and that Microsoft will become more important in this space.

Ian Small, now an employee of Telefonica, apparently has adopted that company's belief in supporting the HTML5-based Firefox OS. Small contends that the smaller  emerging markets are different, and that a more "open" platform will win out.

HTML5 drew an otherwise bearish response from the VCs, when asked if they were investing in that technology. Rich Wong explained that he doesn’t believe in HTML5 at all for the long term, and that it is for a small segment of the market. He correctly pointed out that the trend toward Android is accelerating, and that
it is swamping feature phones at the low end.

Coneybeer agreed, saying that there are better opportunities elsewhere. In his opinion, "native stuff" works well, and there are plenty of iOS developers. VCs focus on  opportunities to build businesses with products that customers love, not on the language of implementation.

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