Forbes Magazine
Brewmeister
By Elisa Williams
The war over cell phone standards takes electrical engineer Paul Jacobs to Hollywood.
Qualcomm's Paul Jacobs doesn't look like your average professional wrestling goon. Urbane and conservatively dressed in a gray shirt and tie, the 39-year-old Berkeley-educated Ph.D. and electrical engineer is better known for having been a Star Trek geek when he was younger and for his current passion for contemporary art collecting.
But there he was last August, attending a World Wrestling Federation SmackDown event in Los Angeles. Soon after he met with 230-pound Shane McMahon, son of trash-talking WWF boss Vincent McMahon, McMahon climbed into the ring and was slammed into the announcers' table by WWF superstar the Rock.
"A different kind of person than we've been dealing with," deadpans Jacobs, president of Qualcomm's (NasdaqNM:QCOM - News) wireless and Internet group and the third son (of four) of Chief Executive Irwin Jacobs.
These days, less different than you might think. As the point man for Qualcomm's recent push into wireless applications, Jacobs is taking a lot of meetings with some odd characters. More recently, Jacobs met with squinty-eyed Hollywood action star Steven Seagal to discuss a wireless game based on Seagal's high-flying kicks and karate chops. He's also had meetings with Philadelphia 76ers legend Julius (Dr. J) Erving, Nascar, Walt Disney and others developing applications and games for cell phones using Qualcomm's technology.
If meeting someone like McMahon, whose résumé describes his "finishing move" as "clobbering his opponent with a foreign object," seems out of character, it isn't to Jacobs. By some accounts, nothing less than the future of Qualcomm depends on how much success the younger Jacobs has convincing software developers to design applications for phones based on Qualcomm's core "code division multiple access" (CDMA) technology. Though licenses on its 731 CDMA patents provide just 30% of the company's $2.7 billion in revenues, they make up 60% of its $942 million in pro forma operating income.
"Applications are the future for the wireless industry," Jacobs asserts.
Until last year the company was mostly consumed with winning the battle against GSM, GPRS and the alphabet soup of other cell phone standards. But now Qualcomm has stepped up the fight to a different level. By promoting applications for new generations of cell phones, the company makes money not just by getting carriers and manufacturers to adopt its CDMA standard and its chips for phones that cost as much as $400, but it also gains an incremental royalty stream from applications based on a Qualcomm format called Binary Runtime Environment for Wireless --Brew, for short. Just as Microsoft's Windows became the lingua franca by which all other PC programs are designed, Qualcomm is hoping that Brew will become the Windows of new cell phone applications.
Brew solves a problem that has confounded the industry since its inception. Imagine that every time you want to load a new piece of software onto your desktop computer you have to toss out the machine and buy a new one pre-installed with the application. That's the way it works with cell phones. If an application isn't loaded at the factory, tough luck. Even if an application exists, it has to be redesigned for the myriad cell phone operating systems and standards. Brew allows a consumer to download applications on the fly--if, of course, Brew was loaded when the phone was bought.
"Applications are the key. People don't buy technology," says James Straight, vice president of wireless data and Internet services for Verizon Wireless, the first and so far only U.S. carrier to adopt Brew. "The beauty of Brew is we didn't have to go out and design a whole new device strategy."
Say you want to download a wireless version of a Tiger Woods video golf game. Using a new cell phone from Verizon, you click on a menu and select the game. Within moments the game is downloaded onto your phone for $3 a month. A Sony PlayStation it's not, or even a Game Boy, but it's a big improvement over the eyeball-glazing, text-only offerings of most existing cell phones. And unlike a PlayStation, it can be played under the table during one of your colleague's interminably windy presentations.
Of course, having been designed by the company that has an interest in promoting the CDMA standard, Brew works best on CDMA phones. A cell phone version of Sun Microsystems' Java, in contrast, is more agnostic. And because it's already widely used by software developers, Java has a built-in community of supporters, giving Sun a substantial head start over Qualcomm. As of now Java ranks number one in the wireless market, while Brew is number five (behind Palm OS, Windows CE and Symbian), according to IDC.
But Qualcomm says that with some minor tweaking most Java-written programs can easily be adapted to take full advantage of Brew. Qualcomm further sets Brew apart from the competition by offering a soup-to-nuts service. Brew not only delivers the application to a cell phone, it also comes up with a bill for the users and returns a cut back to the application developer.
In return Qualcomm collects a toll of as much as 10% of the revenue from each purchase of a Brew application, a lucrative deal that raises eyebrows in the industry. Microsoft does not collect a 10% royalty on applications that work with Windows.
For that reason Qualcomm has had a tough time convincing even its loyal CDMA carriers to adopt Brew. Sprint is developing its own software delivery system, based on Java. Brew will also have to compete with an expanding list of services offered by Nokia and its partly owned software partner, Symbian.
"The problem is some of the most popular handset vendors are infrastructure competitors to CDMA, and so they'll never support Brew," says Ronald Jasper, vice president of strategic relationships for Infowave, which develops software for corporate wireless networks.
Qualcomm plans to get around that challenge by pitching Brew as a competitive advantage. At a recent trade show Qualcomm demonstrated Brew working on General Packet Radio Service (GPRS), which is used by AT&T and Cingular. Donald Schrock, head of Qualcomm's chip division, calls it the "dam-breaker strategy." If Verizon offers its customers something, Sprint will eventually feel compelled to match it, and so on.
It also helps that Paul Jacobs has made Brew into something of a crusade. The third-largest individual holder of Qualcomm stock (behind his father, who controls 3.5% of the company, and an outside director), he has a flair for marketing. He came up with the catchy acronym. He's also become the company's informal liaison with Hollywood, a relationship that goes back to 1997, when he was running Qualcomm's former handset division and hired Star Trek actors to promote a phone. Another ambition: Get movie theaters to use Qualcomm compression technology when they abandon celluloid for digital films. The huge cost of the switch means it won't happen soon, and it remains to be seen whether the industry will opt for digital distribution.
What's it like being the boss' son? "There are pluses and minuses to it," says Jacobs, who probably can't help thinking of his father every time he passes the elder Jacobs' bizarre 12-foot-wide Kenny Scharf painting of a woman with boxes on her hands that hangs in the executive suite. "I will not complain at all about having people question my abilities before they get to know me. There's some benefits to having people underestimate you. When you're going into a new area, that's always a good thing."
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