Thread - It's surprising how much we look offshore, for a sense of direction in the Mobile Last Mile. From the article below...
"One interesting question is, Will the PDA become a phone, or will the phone become a PDA?"
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Making Sense of the Wireless Internet
Sep 01, 2000
Bill Gurley, a general partner with Benchmark Capital, is a member of the AnywhereYouGo.com community.
"I'm just a soul, whose intentions are good
Oh Lord, please don't let me be misunderstood"
--Eric Burden and the Animals
When the Internet burst on the business scene five years ago, several companies were criticized for "not getting it" and not moving their business to the Web fast enough. Just as we are gaining a better understanding of that dislocation, a new one has emerged on the horizon asking many of the same questions: the wireless Internet. Unfortunately, in many ways the wireless Web is more complex and confusing than its wired brother. This article will attempt to simplify this world in two phases. First, I will walk through an overview of the current infrastructure from a global perspective. Then I will discuss what I see as the five most important issues that confront the business executive when thinking about a wireless strategy.
Perhaps the most discussed issue with regards to the wireless Internet is the fact that the United States trails both Japan and Europe in terms of innovation and progress. Many executives in the United States, particularly those involved directly with the wireless industry, will debate this issue, but in the end the numbers speak for themselves. Leading the world is NTT DoCoMo, with its i-Mode wireless data service in Japan. The Number of i-Mode subscribers is quickly approaching 10 million from a standing start in February 1999. In addition, the features and functionality of the company's phones far outweigh anything available here in the states. Europe is probably closer to the United States than to Japan in terms of progress, but is still somewhat ahead. The primary innovation in Europe is SMS, which is a cross-carrier cellular phone version of Instant Messenger. SMS users are expected to top 50 million by year-end, and the number of SMS messages per month exceeds 1 billion.
Why is Japan ahead of the United States and Europe? The main reason is that they were the first to implement a "packet switched" infrastructure (as opposed to "circuit switched"). In the United States and Europe, data transmission is accomplished by connecting via a normal phone call to a bank of modems that handle data transmission. The differential is almost identical to the difference between using a dial-up modem vs. connecting directly to the Internet via a corporate LAN. Packet-based networks are ideally suited for bursty data and result in a better "always-on" user experience and a lower cost.
Although Europe is still circuit switched, it still has advantages over the United States. First and foremost, the carriers in Europe have been far more accepting of common industry standards. All the carriers use the same underlying GSM technology, which results in much better interoperability and allows for equipment innovations to be shared. This standardization philosophy also enables inter- carrier functionality such as SMS (we still don't have interoperable instant messaging on the wired Internet in the United States). The other primary European advantage is cell phone penetration, which is well above 50 percent in some countries.
Another interesting difference pertains to e-mail. In Europe and Japan, many people obtain their first personal e-mail addresses through their cellular phones. We all know that e-mail was one of the original killer apps of the Internet. Well, that same phenomenon is driving the acceptance of the wireless Internet overseas. The cell phone has become the primary e-mail device for most consumers.
If you read about wireless, you are likely to encounter the letter "G" used to describe different evolutions in wireless Internet technologies. This can be much simpler than it sounds. 2G refers to today's technology. With the exception of NTT in Japan, this means dial-up connectivity with a maximum throughput of about 9.6K. 2.5G, expected to launch in 2001, represents the implementation of packet-switched networks with a maximum throughput of just over 100K. 3G, the current Holy Grail, will of course be packet switched as well and will support speeds up to 2MB. 3G should launch in Japan as early as 2001, but don't expect broad rollout elsewhere until about 2003.
When thinking about the wireless data infrastructure, keep these two things in mind. First, the move to packet switched is more important than raw speed; therefore, 2.5G is more important than 3G. Also, watch out for the word "up-to"--the first 2.5G implementations will be well below 100K. Second, for all practical purposes, it looks as if Japan will extend its lead, and the United States will continue to follow. NTT DoCoMo will clearly be the first to implement 3G and is well in front in terms of understanding business models and customer NPVs. The United States must overcome interoperability issues and needs some help from the government, which has been slow to clean up spectrum issues that could hinder 3G rollout locally.
Now, let's move on to the five key unresolved issues that are most likely to affect those that are implementing a wireless strategy.
To WAP or not to WAP?
Most wireless Internet users in Europe and the United States access their wireless data through the Wireless Application Protocol. WAP is a set of standards that describes how a cell phone accesses data over the Internet. WAP supporters argue that a cell phone's latency, interface challenges and low processing power require a separate set of technologies than those used on the Internet (HTTP and HTML for example). The anti-WAP forces argue that these same three things will go away, particularly once we move to packet-switched networks (2.5G+). Supporting this argument is the fact that i-Mode, the only packet-based network operating today, relies on HTML, not WAP.
PC, cell phone, PDA?
Another interesting question is which device will be the primary Internet access device for most people. The PC seems like the natural choice, primarily because of the large installed base, the richness of the experience, and the relatively high connectivity speeds. However, the installed base of cell phones is about twice that of PCs, and some argue that being "always with you" is a critical advantage. The PDA has a richer user interface than the phone, but the installed base numbers are much lower. One interesting question is, Will the PDA become a phone, or will the phone become a PDA?
Killer app?
Everyone likes to talk about the killer app, which is usually defined as an application that drives customer adoption. You will see a lot of articles and press releases talking about corporate applications, contact information or "m-commerce," but the applications driving adoption in Japan are fundamentally consumer-focused. Games, daily screensavers, daily rings and instant messaging are the apps that are most popular. We should ignore the market's current distaste for business-to-consumer as we plan the future of the wireless Internet. This is a social medium more than anything else.
Is there a business model?
The best way to answer this question is to look at i-Mode. NTT has been successful in charging people per-bit fees as well as subscriptions for extra services. One key to this has been using the billing relationship with the customer and using this billing infrastructure as a one-click payment alternative for content providers. In other words, they piggyback on DoCoMo's bill. Of course, on the broader Internet, competition has driven many services to free or near-free, and the same could happen here. Many start-ups will point to advertising and e-commerce, but those streams will likely be limited to those with "portal power."
Who has Portal Power?
Portal Power can be briefly defined as any company that has a large number of users and can use those relationships to extract rent from others who want to reach those customers. Everyone from cellular carriers, to hardware manufactures, to portals such as America Online and Yahoo, and new mobile portals are counting on having this position. If the carriers can overcome the mistakes of the ISPs on the Internet, they should be successful here--particularly if they use the billing relationship. Otherwise, the current portals are likely winners. Just remember this, in the words of the sci-fi thriller "Highlander": "There can be only one."
It is surprising that even with the rise of the Internet as a proxy, there are many unknown questions with regard to the wireless Web. The good news is that we get to watch NTT DoCoMo in action and learn from its model-a unique position for American companies.
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