LESSONS LEARNED FROM METRICOM AND MOBILESTAR-
FREE WHITE PAPER
Note: the following is excerpted from our complimentary white paper, "LESSONS FROM METRICOM AND MOBILESTAR:
SUCCESS FACTORS FOR THE PORTABLE INTERNET ACCESS MARKET," available on our website at www.shosteck.com
Networks and technologies are emerging which are optimized to support users who need better connectivity to the Internet than can be provided by today's mobility networks. These will serve users of laptops, digital cameras, handheld games, audio players, and other devices yet to be introduced, using Internet protocols and standards rather than wireless industry standards. Most importantly they will do it at lower cost, with lower latency and better bandwidth availability than can be offered by 3G - regardless of RF technology. We refer to these as "portable Internet access" networks.
Metricom entered this market in 1996 but failed in mid-2001 because its technology could not be built out affordably on a nationwide basis. The underlying cause of this was its inability to garner subscribers, which would have provided ongoing operational revenues. It ultimately achieved only 51,000 subscribers, which was less than one percent of its perceived target market. This resulted from a gross overestimation of the number of people qualified and motivated to subscribe to the network. The Metricom
failure was exacerbated by its limited network coverage, proprietary technology, poor marketing, high end-user cost, and poor scalability of its "micro-cellular" technology.
MobileStar entered the market in 1997 as a Wireless LAN "hotspot" network. It failed in late 2001 because it also could not support network build-out on a nationwide basis, despite a markedly lower cost for infrastructure. As with Metricom, it was unable to achieve subscribers due to poor marketing, limited network, and poor scalability, but the key cause may have been a much smaller market than was originally perceived.
An ill-advised agreement to provide service in Starbucks coffee shops accelerated MobileStar's failure. Other WLAN hotspot networks are still in business because they have effectively shifted cost and risk for network build-out to others.
Both failures point to a need for future portable Internet access networks to serve a wider group of users and devices (meaning mass-market appeal) and/or be substantially less expensive to deploy on a nationwide level. Metricom and MobileStar demonstrated that defining the market by laptops alone creates a tight economic restriction on the cost of a technology approach. A price point which appeals only to business users only exacerbates the situation.
Network operators are considering building or buying WLAN hotspot networks to augment their 3G offerings. We believe that this is a questionable strategy and will result in losses rather than profits. The WLAN hotspot network business appears to be one which is growing in popularity but decreasing in profit potential - at least for the operators of the networks.
However, a network which can deliver IP to a range of devices and over wide areas has a much larger potential market, particularly in the future as more devices become Internet-enabled. This potential market faces little competition from mobility operators, who are presently unmotivated to enter the "pipe" role and who are using technologies (3G in particular) which are optimized to deliver discrete services rather than IP, at higher
end-user cost.
Because IP networks are inherently "pipes," they will compete on the basis of best delivery, best price, and best coverage (ubiquity). They must be able to profit on airtime without transactional or portal revenue, which implies that operating expenses must be reasonable, controllable, and predictable. However, this still leaves open the door for network operators to offer added value based on variable tiers of bandwidth and latency, and services such as auto-configuration of devices and VPN support.
Additionally, the ability to be deployed ubiquitously is critical. This is governed by a mixture of capital cost, scalability, deployment complexity, spectrum requirements, and operating expense. While services in the voice world could be addressed to a business user at a premium price and slowly brought down to consumers while coverage was expanded, the Internet access market will be different. Services must consider the "late adopter" from the start: price sensitive, likely to use power-constrained devices, and desirous of wide-area coverage even if not actually requiring it.
Our white paper, which is available as a free download at
shosteck.com, covers these issues in considerably more depth. We invite you to review this paper and email your comments to jzweig@shosteck.com |
